While Irene splashed Wall Street, we Coloradans reveled in the ridden glory of the USA Pro Cycling Challenge. The 500-mile route hosted 130 of the world’s top cyclists including Tour de France winner Cadel Evans and both runners-up, Luxembourgers Andy and Frank Schleck.

We were there, clanging bells and hooting our hearts out. Here is winner Levi Leipheimer readying for the time trial that put him in yellow. The peloton left Avon here for Steamboat, and Levi is visible midway in yellow. At the finish, some 250,000 jammed downtown Denver for the epic, lapping conclusion. We are proud of American cycling and our state’s awesome organizational effort.

Speaking of peloton, Wall Street Journal reporter John Jannarone wrote Monday in the Heard column called “Traders Seek Salvation from Correlation” about how stocks race in formation. It’s among the best pieces we’ve seen on modern trading. Jannarone says that S&P 500 stocks show 80% correlation in the past month, meaning eight in ten move synchronously.

This is a source of distress for IR folks trying to distinguish a strong company story from the herd. We’d argue that rather than slamming the collective IR noggin into the burgeoning brick wall of macro-focus investing that you instead track program trading and establish what level is acceptable – and use it as an IR success measure. We wrote about this last week, so we won’t retrace the trodden path.

Why a mirror image across so much of the market? One driver Jannarone posits is Exchange-Traded Fund investing. According to Credit Suisse, these drive some 30% of daily stock volume. Jannarone also notes that trading in S&P 500 E-mini futures contracts is more than four times the combined daily volume of the two biggest S&P 500 ETFs, the SPDR, and iShares S&P 500 Index ETF. Continue reading →

“We determined that it was appropriate to re-examine the appropriateness of short sale price test restrictions.”

We copied that sentence from the SEC’s 334-page charter instituting Rule 201 amendments for short sales. While it’s amusing that the authors modified the word appropriate with the word appropriateness, what’s important is that the rule took effect yesterday, Feb 28. What is it and how might it impact investor relations?

It’s hard to summarize a document consuming 60% of a ream of paper in one sentence. But Rule 201 implements an uptick rule – which regulators removed as part of Reg NMS in 2007 – when securities drop 10% from the preceding day’s closing price. If that happens, an uptick rule will be enforced in which long sellers matching at the best bid or offer will be able to sell ahead of short-sellers, and shorts will only be able to sell if the price ticks up above the last bid.

The idea is that if long sellers get called up to the front of the line, it’ll promote investor confidence by reducing the severity of short-driven price swings. And it’ll improve market-efficiency by letting those with long positions off the boat, thus discouraging short sellers from trying to sink the boat. Continue reading →

The lawyers doing the writing at the SEC are good. The 104-page novella the Commission released last week with the Commodity Futures Trading Commission gallops readers spritely to an inconclusive denouement.

No offense intended. For anybody versed in trading markets, the report is logical and easy to follow. We agree with the description of underlying trading activity, even so far as the report’s conclusion that real buyers and sellers are about 10% of the market. There are charts that look somewhat like our models of market structure, illustrating trading share by market center (we do it by behavior). Continue reading →

Loveland Ski Resort an hour up I-70 from downtown Denver logged 26 inches of snow in the past five days. We’ve had to cover patio plants the past two nights as temperatures dipped to 30. It’s bright and clear. But winter has had a hard time letting go this year.

Meanwhile in Europe, Morgan Stanley launched a lending book for European Exchange Traded Funds (ETFs) today. Here is the key to understanding financial reform currently mucking up Congress. It encapsulates everything that’s wrong with today’s capital markets. Continue reading →

This formidable IRO says to me, “Quast, here’s the deal. You say rational, fundamental investment is a tiny fraction of trading now and we’re all bond servants to traders and risk managers who’re disconnected from traditional IR. If that’s the case, IR as we know it is dead.”

Continue reading →