Good to see you folks in Boston last week. But I needed Denver to thaw me out. It was seventy here last Saturday. I washed the car in T-shirt and flip flops.

If at first you don’t succeed, try, try again. So it goes at the Nasdaq.

Last autumn the exchange proposed to charge small-cap companies fees of up to $100,000 to incentivize market-makers to trade small-cap ETFs, arguing to the SEC that it would infuse thinly traded securities with liquidity. The rule would have required the SEC, FINRA and the exchange itself to reverse longstanding prohibitions on paying market makers to trade securities. For certain exceptions only (of course, exchanges pay billions of dollars in rebates to “liquidity providers” each year).

The SEC promptly rejected the rule-filing. Now it’s back. See it here.

IR folks, do you know the adage about being wise as serpents but meek as doves? Question what you hear from exchanges that rely on data and transactions – not issuers – for revenue and profits. Take nothing at face value. Examine the facts. Continue reading →

At county fairs when I was a kid you could buy a “Shoshoni Weather Gauge,” which hawkers said could forecast the weather like an American Indian.

It was a rock tied with a leather strand to a wooden stand. The instructions said: “If rock is wet, it’s raining. If rock is dry and hot, it’s sunny. If rock is cold and covered with fluffy white layer, it’s snowing.”

Similarly, I saw this in a recent Bloomberg article: “The best way to keep pace with the S&P last year would have been a strategy that rotated between sectors based on the macro headlines,” said David Spika, fund manager at Westwood Holdings in Dallas.

That sounds a lot like “if rock is wet, it’s raining.” The elegance of simplicity notwithstanding, how do you distinguish the IR chair and your company’s shares in a market moving on whether the rock is wet or not?

One argument says you change your focus. Deemphasize the capital markets and instead get baptized in Dodd-Frank, proxy evolution, say-on-pay and myriad others rules and regulations oozing like molasses through public capital markets. Become a compliance concierge. Well and good. But you’ll be competing with internal and external legal counsel for thought leadership, and I find that the advantage lawyers have is they have law degrees. Continue reading →

Happy New Year! If the holidays this year seemed sweeter, the air more welcome to the well-caroled note, it’s probably because I’ve been quiet for two straight weeks.

And with good reason. The lovely KQ and I winged southward with fellow wayfarers for time over the keel on the cayes and reefs of Belize. At Queens Cayes east off Placencia past the wildlife preserve at Laughing Bird Caye, we found what one friend called “your own Corona commercial.” As the sun faded toward dusk there, we caught this grand view of our boats on Dec 11. Our companions below the surface included this delightful fellow, a spotted eagle ray. The Eagle Ray Club is a good name for a rock band. Continue reading →

Editorial Note: This Market Structure Map first ran June 29, 2010. It’s reprinting because Tim Quast is following the lead of congresspersons by taking a “fact-finding junket” aboard a sailing vessel off the coast of Belize. It’s in the public interest.

Oscar Wilde said that illusion is the first of all pleasures. Of course he also wrote that anyone who lives within his means suffers from a lack of imagination.

Buttressed on either side with those brackets about illusion and means, let’s look today at what’s afflicting our market and why some institutions like transient trading when others don’t.

Vanguard, an institutional investor focused on passively managed funds, supports high-frequency trading. George Sauter, CIO for the Vanguard Group, wrote in the firm’s comment letter to the SEC on market structure that high-frequency volumes reduce trading costs through competition and tighter spreads. He quantifies the benefit to investors at roughly 10% over a decade. A passive fund providing 9% returns per annum would deliver only 8% returns without HFT. Continue reading →

Isaac Newton posited 334 years ago in his third law of motion that mutual forces of action and reaction between two bodies are equal.

I wonder what he’d think of the relationship between the US dollar and equities, where this small action produces that decidedly unequal reaction.

After the Federal Reserve acted to shore up bank balance sheets by buying long bonds and mortgage-backed securities last week, the dollar trampolined and markets dropped like Newton’s apple.

Pundits blamed dismal economic data. Yet we saw money market-wide shifting from equities September 16 with quad-witching. Before the Fed offered a dim economic portrait. If money was reacting, it sure had a funny, proactive, organized way of showing it.

Today and Monday, the dollar weakened and stocks zoomed skyward in a Newton-flummoxing frenzy to reclaim paradise lost. How many believe this is rational investment behavior? If you do, there’s a solar-panel plant in California that might interest you. Continue reading →