If you’re attending the annual NIRI conference in San Diego, stop by booth 222 and see us! We’re not giving away, oh, flights on the space shuttle. But in sharp contrast to politicians whose promise of change is the same old re-packaged crap that got us in this mess to begin, our service is truly different. Different technology, data – new tools for new rules, we like to say. And worry ye not, we don’t take ourselves too seriously.
It’s ModernIR’s third year at NIRI. Of course, I’ve been a member since 1996, which apparently now qualifies one as either an industry sage or somebody perched just sane side of early-onset dementia (a little humor there).
It’s also been three years now that we’ve been weekly dishing investor-relations goop in these emails. If you find our insights valuable, tell your colleagues. Have you noticed how the things we’ve long written about here are now hitting mainstream business media? Dark pools. Options expirations and derivatives trading. How pension funds are big traders now, not just the hedge funds. How sovereign wealth funds are a looming force. How major institutional investors drive up commodity prices. We don’t mean to brag, but to simply note how we bring investor-relations officers, and CEOs, and CFOs the combat-level view of what’s happening in equity markets. And we're generally well ahead of the crowd.
All right, leaving self-serving behind, let’s have a look at the short trading week wrapping up May 2008. Data showed Speculative volumes jumping several percentage points as arbitragers capitalized on month-end “institutional rotation,” a fancy way to describe adjustments to portfolio strategies. We also observed that platforms noted for high-speed statistical arbitrage, “rebate trading” (firms with sophisticated algorithms for furnishing shares to market centers) and ETF and index-fund rebalancing were busier.
Were equity research departments more active too? It seemed so to us, with a wave of notes and reports and reiterations of ratings and price-target changes, etc, out. We’ve written before about correlations between buyside and sellside activities. We don’t see a problem with that, since the sellside exists to serve the buyside and earn transactional business from it. For instance, mid-month options expirations periods often result in market inefficiencies and greater volatility – conditions beneficial to institutions wanting to take profits or rotate holdings. No wonder sellside volumes go up then.
The same is true at the ends of months. We see more short-term hedging activity, increased volatility from rebate trading, and of course institutional rotation and profit-taking. Is it any wonder that sellside firms also SEEM to be putting out more research at these times? By careful observation of trading volumes at firms publishing reports, it’s possible to get an inferential but rather accurate read on what’s behind it. Were they trying to help buyside clients move shares? Often such possibilities are evident in the order flow. By the same token, if a brokerage puts out a bullish note but experiences no corresponding increase in order flow, it’s not beyond reason to suppose that the firm either carries no weight with institutions or may be expressing a different view privately. These aren’t accusations, just observations. Part of the new milieu of the marketplace that requires new tools to understand, IROs.
We’ll take a break next week while we’re in San Diego, by the way. Hope to see you at booth 222!
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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