We’re two days late this week because it’s been busy-busy. So let’s catch you IR folks and execs up. We’d warned of market volatility through 5/21, thanks to a spate of options expirations ranging from the 2009 LEAPS conversion (“Long-term Equity AnticiPation Securities, a derivative originated by the Chicago Board Options Exchange) on 5/12, to Wednesday’s ETF volatility-measure expirations and the usual index, stock, currency and interest-rate expirations on 5/15 and 5/16.
As we’ve said so many times, the markets don’t swing a couple hundred points because fundamental investors this morning leaped from bed or swooned to the floor in some bipolar reaction to economic news. Volatility derives from supply/demand imbalances, period. These imbalances are very short-term in nature right now because nobody trusts available data or opinions. We’re adamant about these observations because we see the data. Fundamental investment remains constrained. Short-term jockeying is rampant.
Speaking of the data, there are changes afoot in trading, no question. Perhaps it’s a function of efficiencies having finally caught up with all the systems predicated on similar basic concepts ranging from 130/30 long-short strategies to various time-weighted or volume-weighted means of execution, to terabyte data analysis.
So is equity research back? Are we approaching the dawn of a new era of enlightened fundamental emphasis? Not yet, for sure. If anything, there’s more experimentation at work behind trading volumes as firms and thinkers and programmers and strategists tweak with systems to separate themselves from the pack. Automation isn’t going away. But how it’s applied is most definitely subject to change, like everything else.
Why should you care, investor-relations practitioners and corporate executives? Because understanding the broad nature of the capital markets and the specific characteristics of your market structure are core to wasting less time and money on investor outreach and gaining more peace of mind about why your stock behaves the way it does. So make sure you’ve “got map” as our new website says.
Margaret E. Wyrwas - Knight Capital Group, Inc. (Nasdaq: NITE)
Senior Managing Director, Corporate Communications & Investor Relations
Equity Analysis™ subscriber since March 2007
"In global markets driven by automation, changing market structure regulation and dynamic investment objectives, today's investor relations professionals require new data points in order to remain relevant and add value in their company's quest to reduce its cost of capital."
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