After delaying the Market Structure Map a day, as is our custom around market holidays, we're back! And the shutters are latched for autumn at estates in the Hamptons now, as Wall Street turns attention to the sellside slate of fall conferences.
It’s a slimmer schedule today than in times past, with quantitative trading and commodities and derivatives reducing fundamental investment, and regulations restricting connections between banking and equity research. But still, it’s an important stretch on the IR calendar. How do you pick and choose which conferences to attend? Time is precious and so are budgeted dollars (with airfares and hotels both pricier now, you probably have to limit the lineup).
Do you factor trading into your thinking? Take a look at your list of market makers over the past 20 trading days and the preceding 90 days by month (whether you’re listed on the Nasdaq or the NYSE, these data are available to you). If you can, examine your market-maker rankings around news, earnings, options expirations and industry events developments. Look at trading activity in step with analyst upgrades and downgrades. Who wins the buyside’s business? Are investors sending order flow to the trading desks at firms making pronouncements about your results and prospects?
Today, trading – not banking – drives sellside profits. If firms aren’t winning trading business, they’re not exercising buyside influence. And you should consider this information in determining which conferences you attend. True, there are additional factors in the equation, such as order routing (which broker-dealers are required to report under Rule 606, and in context of best execution as measured under rule 605), and use on the buyside of direct-market access – executing their own trades via outsourced solutions that free them from conventional broker-dealer relationships. But the fact is, sellside firms will go broke if they don’t generate some form of transactional business relative to trading, be it account-maintenance, prime brokerage, trade execution, clearing, the provision of margin and other forms of financing, and so on. Knowledge of these matters is necessary now to an effective investor-relations arsenal.
Wrapping up, what should you expect this fall? Anticipate adjustments to program trading and a careful examination on the buyside of how and where capital will be committed ahead of the next round of earnings reports. But recognize too that risk-management and asset-allocation continue to ride herd on buyside decision-making processes. In short, it’s heavily quantitative. So make sure you’ve got your value and growth stories down cold. You’ll have to differentiate well (value investments have performed badly on a global basis recently because buying dips is hard when markets are controlled by short-term traders and risk-management tactics).
Hope you enjoyed Labor Day! We logged 1,400 road miles in the Hells Canyon recreation area of far northeastern Oregon, one of the globe’s truly spectacular places. Snows in the Elkhorn and Eagle Cap mountains remain from last season, and this looks to be another banner blizzard year for high country snows.
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."
