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We're back from NIRI National, the annual investor-relations confab. NIRI says 1,100 were on hand, less than most years but a feat in the current budget famine afflicting everyone but government.
I moderated a panel on how the buyside and sellside trade your stock now, with Brian Barrett, Senior Trader at Franklin Templeton Funds; John Adam, head of corporate access at dark pool Liquidnet; Joe Saluzzi, co-founder of agency trader Themis Trading LLC; Bryan Harkins, head of Sales and Strategy at ultra ECN Direct Edge; and Anthony Corso, head of trading at agency trading innovator Rosenblatt Securities.
Thanks to these sharp folks, we played to a packed house Monday the 8th and heard good words about it for the rest of the conference. To our gratitude, many coming to the ModernIR booth called it one of the best NIRI sessions ever. Most IR folks don't know dark pools, high-frequency trading, rebate trading, and how these forces affect cost of capital and decision-making processes for institutional investors. Everybody on hand there has at least an idea now, which helps them move their management teams from caveman to contemporary cool (a little humor there!).
Speaking of cool, the Hip at NIRI Award this year goes to dark-pool operator Liquidnet, which must've spent gobs on its textbook NIRI coming out party. Most IR folks didn't know Liquidnet, which runs one of the biggest dark pools for matching up buyside block trades. Think of dark pools as private clubs where buying and selling can occur without everybody watching and speculating. The same rules for best bid and offer apply and trades must report to the consolidated tape, so accurate volume figures propagate to data engines. But that happens after the trades, and at Liquidnet the average trade size is 55,000 shares, while in displayed markets like NasdaqOMX or NYSE Euronext, it's about 200 shares. That's a big plus for institutions.
Liquidnet even introduced a market-structure tool called Infrared ID that'll show IR folks institutional interest behind the scenes at Liquidnet. It's cool – and similar to what we've been doing for a couple years with "rational price," or what fundamental investors think versus where traders and risk managers price your stock.
But a dark pool sweeping aside the veil for issuers? Now, why would this broker-dealer serving the buyside want to cozy up with issuers? Here's our theory, and we can be wrong of course: Liquidnet announced at NIRI that its ID service (see link below) will feed through the NYSE for issuers using NYSENet. Stripping away everything else, we think Liquidnet aimed at NIRI to cast away the Darth Vader cape that dark pools wear in the eyes of IROs (dark pools aren't evil, and they're used most by two kinds of participants, which we'll talk about another time).
Bottom line, the NYSE could use Liquidnet, and vice versa. But bad vibes from issuers would hurt a future transaction between the two, so this is a way to get issuers comfortable beforehand. So we think the NYSE will buy them. Whatever the case, we're delighted that a firm on the front lines of trading today is telling IR folks to change the way they think about what happens behind trading. Step one is getting your management team current about what's real, versus what's noise.
Concluding note: it's options expirations week again, with "Quad Witching" Friday, and Russell quarterly rebalances, and just a colossal amount of expirations roiling equity markets from yesterday June 15 (the 2010 LEAPS conversions) all the way to the end of the month. Expect chaos and volatility, because swap and counterparty contracts for risk management play out in the way assets are held and hedged. This more than anything will be affecting equity prices for the next two weeks.
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