The logical answer is “stocks go up and down.” Let’s get more specific. Among the 20 largest asset managers at the end of 2009, ten were bank-owned, says consulting firm Towers Watson. The five largest – Blackrock, State Street, Allianz, Fidelity and Vanguard – are independents that pass the preponderance of their buying and selling through the biggest sellside firms on passive equity and ETF trading programs.

The banks behind ten of the twenty largest asset managers include BNP Paribas, Deutsche Bank, JP Morgan, BNY Mellon, Credit Agricole, UBS, Goldman Sachs, HSBC and Bank of America.

The top ten futures brokers for 2009 were Newedge (Societe General/Credit Agricole joint venture), Goldman Sachs, JP Morgan, Deutsche Bank, Citigroup, UBS, BofA, MF Global, Morgan Stanley and Barclays.

The five largest banks behind derivatives contracts, according to the US Treasury are JP Morgan, BofA, Citigroup, Goldman Sachs and HSBC and the top 30 banks control nearly 100% of this business.

The top prime brokers offering value-added trade-execution services to investment managers in 2010, according to Global Custodian, were Credit Suisse, Deutsche Bank, Morgan Stanley, Goldman Sachs, JP Morgan, BofA Merrill, Newedge, UBS, Citi and Barclays.

The twenty-odd primary dealers for the Federal Reserve’s security auctions include most of the banks mentioned here, from BNP Paribas, to MF Global (formerly hedge fund giant Man Financial), to UBS.

Tracking trading, we have observed big gains in equity program volumes for BNP Paribas, Newedge and Credit Agricole. Barclays, Goldman Sachs, Morgan Stanley and Credit Suisse dominate still.

Do you see the pattern? The same banks that manage risk also drive trade executions. The ones that underwrite futures and options also help money shift from equities to futures and options. The ones managing the movement of government money are behind program trading in equities.

And the rules, from how trades match, to order-types, to best execution, to order-routing practices, are uniformly decreed by the SEC. Risk-management requirements are so steep that just big banks qualify to handle massive globally sloshing cash.

Thus, the answer to our opening question is this: When investors buy and sell, their liquidity becomes a tool for trading tactics that may be the exact opposite of what the investors actually think about your shares. Liquidity flows to prime brokers in fragments that congregate into tributaries forming a mighty stream that meets execution requirements and fuels index arbitrage or relieves counterparty risk.

But it’s not fundamental. It’s a device controlled by the few who transfer risk from asset class to asset class.

As you head out this autumn fulfilling the IR tradition of traipsing to sellside conferences, don’t forget the small brokers, the boutiques. Maybe they will buck this monochromatic crowd.

Yet often, boutiques can’t execute trades for investors who buy and sell stock on merits. They may be unable to meet SEC best-execution requirements. So they route to Morgan Stanley, which rolls orders into programs to earn rebates from exchanges, while simultaneously fostering index-arbitrage schemes with algorithms for top clients.

If this bugs you, IR pros, read everything you can about how trading works now. Then tell your management. It’s a place where IR can shine. The rub inescapably rests with the well-intentioned but unfortunate rules that cause all the money to work the same and look the same and flow to the gigantic few.

To borrow the title of a Bob Saget HBO comedy special, “That ain’t right.” And it can change.

Sunday, Karen and I loaded the bikes and set out with good friend Jeffrey to conquer the passage between two of Colorado’s tall “fourteeners” named Princeton and Harvard. We rode from the Arkansas Valley floor at 8,000 feet up Cottonwood Pass (which sounds like “cotton whupass”) from Buena Vista to the summit at 12,126 feet and a stunning view of the fruited plain.

Choosing a route from point A to point B had me thinking about stock trades (you do this long enough, that’ll happen to you too). Stock trades must have routes. Sometimes it happens automatically. Whether orders for shares in your stock meet their matches internally at Barclays or by dint of timing, routing, pricing and chance at Susquehanna’s dark pool, RiverCross, often is a matter of routing. Even online brokers afford ways to route trades now.

Most IR folks don’t think about routing. People buy and sell, and that’s that, we suppose. Alas, no. Routing plays a big role in the behavior of your volume. Think about driving across town in a large city. You might take the freeway or you could wander the surface streets. One may get you from point to point faster even if it’s farther, while with the other you’ll see more and maybe check off errands but hit lights.

The same applies to trades. Brokers must report how they route orders (called Rule 606). Routing decisions can change the entire nature of the volume, too. Sometimes it’s how arbitrage occurs – sending orders out on the freeway and on surface streets simultaneously to see how they impact other traffic patterns.

Orders have value too. It’s not just the buying and selling, but the act of buying and selling. Liquidity as commodity is valuable to others. Exchanges pay for it, offering the best incentives to brokers bringing them the most liquidity. Payments are called “rebates.” You can also pay more to get your orders first in line, just like at Disneyland paying extra for a FastPass slots you ahead of the line. Those are routing decisions.

Broker dealers pay for volume too, called Payment for Order Flow. If they aggregate enough volume and send it out to exchanges as what are called “non-marketable orders,” or orders outside prevailing best prices, then that liquidity can earn big payments from exchanges. The exchanges collectively pay about half their gross annual revenues in these “maker” rebates. It’s about routing.

So it’s not just that institutions buy and sell stocks. In today’s markets, decisions about how orders are routed can become investment schemes themselves. Algorithms may route loose, non-marketable volume around throughout the day just to see what it generates in rebates and payment for order flow.

If a trade routes to a broker, who matches the trade internally inside the best prevailing bid or offer, and then that volume starts routing about to generate the sellside firm returns on liquidity, and your price moves as a result, is that rational activity?

No. Rational thought did not change the price; trading activity did. And that’s why Rational Price, our measure of thoughtful investment pricing, is an important distinction from the noise of the market.

Carmen Barone and the Barclays team graciously hosted me yesterday on the NYSE trading floor, and in the afternoon Marge Wywras at Knight Capital Group turned me loose with the traders on the Knight floor in Jersey City. That’s darned near a perfect business day to me.In reporting back to you on findings important to the IR chair, number one, floor operations play a crucial role still. These specialists, now called Designated Market Makers, are required to support issuers by actively placing bids and offers and committing their own financial resources. By wading into the stream of liquidity, 98% of which is automated on sophisticated mathematical systems, DMMs stabilize prices and help to foster orderly markets. Traders roam the floor with handheld devices controlling a variety of algorithmic options for working orders, which they deploy based on market conditions and customer preferences. They may follow the market, aim to affect a certain percentage of volume, aggressively push for alpha, and trade on a time-weighted or volume-weighted basis.

The floor revenue model has changed. Brokers are paid by the NYSE to provide liquidity, a form of rebate trading, which we’ve written about before. Just as grocery stores give out coupons to encourage customers to shop, rebates help exchanges and market centers attract liquidity from buyers and sellers, who then generate transactional revenue and data-services fees. The NYSE is supporting the DMMs by letting them collect fees that might otherwise go to super-fast market-neutral platforms, the high-frequency traders who own nothing and risk little in order to sit between buyers and sellers and churn shares back and forth.

The NYSE is stabilizing at some 25-30% share of traded volume now, down from the 85% (in listed issues) it enjoyed before the 2006 changes, but an improvement over recent pressure. The irony is that in an era of transparency, even the floor traders don’t know a great deal about the source and nature of the volume with which they interact. But they know a whole lot more than most. Our advice to issuers: make good use of their valuable access to market information.

My good friend Marge Wyrwas offered some eye-opening peeks behind the deceptively quiet façade of the building housing Knight Capital Group’s sleek trading operations. Wow. The floor is sliced up into sections providing sales trading, listed and Nasdaq equity trading strategies, ETF execution, bond trading, currency trading and even a new carbon trading operation. Billions of shares trade here every day. The degree with which Knight can knife through the maze and craze of equity trading and manage the execution of trades is really something to see. Two key takeaways: they do more real volume and less high-frequency trading than many think. And they blend the marvel of human insights with the magic of ultra-modern algo technology.

Personally, I was pleased to see again that we’re keeping right up with what’s happening. In fact, we’re tracking and clustering executed order flow to uniquely capture the nature and origin of liquidity in way that’s not being done, even at that trading level.

Why does all this matter? The IR role is an information role. Become the expert on market structure at your company and redefine the way IR is measured. It’s valuable to your management team, and cool to boot.