“Let me tell you a wonderful old joke from communist times. A guy was sent from East Germany to work in Siberia. He knew his mail would be read by censors. So he told his friends: Let’s establish a code. If the letter you get from me is written in blue ink, it is true what I said. If it is written in red ink, it is false. After a month his friends get a first letter. Everything is in blue. It says, this letter: everything is wonderful here. Stores are full of good food. Movie theaters show good films from the West. Apartments are large and luxurious. The only thing you cannot buy is red ink.”

Great joke. No doubt scrutinizing your trading data to make sense of it is like something written in red, the code for which is blue.

Speaking of which, chances are, your earnings date is approaching. Your intraday volatility (spreads between high and low prices) is perhaps 4%. Across our client base, it’s now over 4% on average. To help you make sense of your stock price, the exchanges and designated market makers and surveillance firms are giving you columns of data on trading by different brokers and sector or economic news. They tell you so-and-so upgraded the sector, causing a strong rally.

You’re not sure. In your gut you think the euro has got a lot to do with it. Maybe the dollar. It would be nice to know. And it would help if you could assess how money will react to the news you announce next week or the week after.

There’s a lot you can know (don’t miss the Nov 3 IR Magazine Think Tank where we’ll discuss it). As much as we rant about the Swiss-cheese state of data for issuers in a gold-bar kind of world for speculators, your trading data in context of market rules is like an electrocardiogram. You can identify what generates the pulse and what’s driving fear and greed in the corpus of your equity market.

It’s a math problem (oh boy). I randomly sampled ten market structure reports for clients. In the past five trading days, Rational share of volume ranged from 10% to 16%, with an average of 12%. Speculative trading averaged 34%; Programs reflecting passive behavior were 29%. Another 24% went to risk-hedging and other things that don’t fit these buckets.

So if you are going to beat your active investors’ expectations on the call, and they consequently value your shares 5% higher, but programs for funds and models – asset managers – set your value 3% lower because of balance-sheet issues, what might happen to your stock?

It’s math. Programs are 29% of your market, so their pricing weight is twice the factor of rational investment. And if speculators have multi-leg straddles that pay off in cash if your shares move down, we can run a calculation that projects what will happen.

We are almost always within 1%. So we must be doing something right. If your stock were trading at $36 ahead of your call, we’d project a close at $34.81, with these expectations applied to outcomes.

How can this be? Markets are a maze of varying purposes and horizons following prescribed rules and order-types to match up as buyers and sellers. This mathematical maze can be sorted through a model.

Since rational investment is about 12% of the market, using data analytics to understand your trading – the same things the folks do who trade it to begin – is a good idea for the IR chair today. You know the 12%. You talk to them all the time. It’s the rest you need to get a grip on, so you can equip management with rational expectations.

We are willing to bet the sum total of wages for a large Wall Street demonstration that no surveillance firm or exchange can equip you with these answers.

How many recognize this as a currency-devaluation? Markets jumped 4% here in the U.S. as the DXY, the dollar index, dropped.

Last Sunday, the European Central Bank pledged to monetize debts of Italy and Spain. Monday, markets plunged globally. That’s a currency-devaluation. The central bank is promising to increase the supply of currency without a corresponding increase in economic output.

Most blamed S&P’s downgrade of US debt. But the dollar strengthened, and Treasurys increased in value. Why would the diminished instruments be more valuable?

Because that’s not what caused markets to tank.

Last Wednesday the central banks of Japan and Switzerland devalued their currencies. Thursday, August 4, markets plunged. Many blamed debt talks. How, pray tell? That’s an assumption without buttressing facts.

By contrast, we have three profound examples inside one week of the global relationship between currencies. As we noted last week, currency trading volume is over $4 trillion daily. US equities are $100 billion or so, on average.

The tail is wagging the dog. Following the cash – the only commodity that is increasing by leaps and bounds upon the planet – leads us directly to the cause.

Why do stocks move inversely with the US dollar? The currency that is supposed to reflect the valuable exchange of goods and services is instead being used to compensate for the absence of valuable exchange. When things go up and down relative to denominating currencies rather than intrinsic worth, it’s difficult for anyone to assign proper values to securities.

Why should you care in the IR chair? It’s an object lesson. If you measure your success by the way rational money responds, you are on a bridge to nowhere. We’re seeing rational investment activity plunging yet again. How can investors buy your stock when its value is often controlled by the ying and yang of the yen? Or the dollar. In one major technology company today, the percentage of rational investment activity dipped to 8% of volume. So 92% of its trading is driven by something or somebody else? Yup.

We suggest setting ranges for the amount of program trading, speculation and rational investment in your volume – so you’re measuring overall trading health rather than investment activity. Because unless all of us call for fixed rates of currency exchange so stocks have value driven by business worth rather than European bailouts, it’s not going to change soon.

Assessing what we know about data, it’s logical to think that US equities will continue to appreciate now into options expirations next week. If currencies are leveling out again on all this intervention, money flows to relative value. But with expirations, the relative value might reside somewhere else.

I don’t know about you, but to me this seems…unhealthy.

I’m moderating the discussion. The all-star panel includes Nicole Olson of storied dark pool Liquidnet; Adam Sussman of expert market-structure research firm TABB Group; and Joe Saluzzi at Themis Trading, one of today’s leading voices on the nature of trading markets. You know him from Bloomberg, 60 Minutes and CNBC.

Two weeks ago at the NIRI finale for the season here in Denver, we were indulging in the benefits of having brewery Molson Coors in the chapter. And someone was talking to me about “black pools.”

I thought, “IR folks don’t get dark pools yet.”

This afternoon an IR pro in California emailed, asking how to figure out what percentage of their shares trade in dark pools. You can’t know, exactly.

Aside: That’s reason #4,032 why you should support the Issuer Data Initiative. If 35,484 of your shares traded at Liquidnet, and 5,203 at Lavaflow today, don’t you think you’re entitled to know? You are. But rules on trades and data for public companies divided in some faded and yellowed wood, and public companies are most definitely on the road less traveled.

Which brings us back to dark pools. The term “dark pool” to me is like trying to describe a process as if it were a place. There are facilities like Liquidnet and Pipeline that specialize in matching trades without displaying prices. But we’re talking about behavior – trading at a posted price, or looking for bargains where prices aren’t shown.

Think about it. This is as old as the hills, old as human nature. You could go to the bazaar where lots of hawkers of wares would list their prices for things. You could do this in ancient Samaria or right now at Walmart.

Or you could instead negotiate with someone in private in hopes of a deal that would keep secret how much or little of the product you wanted. And you might say, “I can get it for two bucks at the market.”

The rules for trading – except for the 14-15 major exceptions and exemptions – require exchanges to display the best prices at which parties are willing to buy or sell shares. Regulations also require the many marketplaces where stocks trade to be connected so everybody always knows the best national deal. Trade there, or pass it on.

What happens when human beings are forced to behave in a prescribed manner? Right, exactly. Humans start looking for ways around it. Dark pools.

Now, dark pools can’t be outside the best bid or offer. But they can be inside it. It’s no different than saying, “I can get it for two bucks at the bazaar,” except that everybody from CFOs to retail investors thinks that the displayed stock prices are best.

But price is only one reason deals meet behind closed doors. Often it’s to keep size secret. What would happen to price if you had to tell the whole world, by rule, that you wanted ten million shares at close of business today?

Now add in one more feature. Since all these markets are required to be connected, and in fact many of the dark pools are linked too, there’s an Ethernet boulevard running through them. Fast machines can race back and forth.

Do you think there’s a wee chance that traders might, oh, display one price out there and a different one in the dark?

That would be human nature. That would also be arbitrage if matched simultaneously.

Regulators seem okay with this dichotomy. When all the different motivations and drives and purposes of many, many disparate beings running myriad mathematical calculations behind trades are forced into deciding between the displayed best price and the unknown un-displayed market lurking darkly in a pool right there beneath that 100-share surface, you are as much as flashing a neon sign that says “please arbitrage at will.”

As a result, we have remarkable machine synchronicity juxtaposed with utter value confusion. Are displayed prices better? Or are investors being gamed by arbitragers in dark pools? The truth is, nobody knows.

When rules attempt to force human beings to do things that they are naturally indisposed to do, the better idea is to get rid of those rules. Why can’t humans decide for themselves what constitutes a good deal, be it price, size, speed or slow but grand service?

Or we can beat every trade into the brick wall, which means a lot more futility from the IR chair, talking and talking to investors about your great business without changing the way your price behaves.

Actually, OTC stands for “over the counter.” It describes brokers doing business directly with each other, and it’s a big reason why NYSE Euronext and the Deutsche Bourse (everybody spells it differently) are merging.

Our friend David Weild, former vice-chair at the Nasdaq and current market-structure expert at Grant Thornton said of the impending deal: “Scale, scale, scale.” Duncan Niederauer, expected to lead the combined entity, said today: “This is an industry that lends itself to scale.” It seems that what began here in 1792 under the Buttonwood Tree at the foot of Wall Street is at an end of sorts. Why?

Businesses need scale when markets are commoditized and currencies debased. But beyond that, it’s the result of monumental revitalization of the over-the-counter market. Big brokers are trading with each other, avoiding exchanges. And because they are experts at managing risk, institutions choose them not just for execution but as counterparties for transferring risk from asset class to asset class. This is fast becoming the main reason that natural liquidity – trading lingua franca for shares not driven by high-speed intermediaries – moves around.

Did any of you see Investment Technology Group’s 10-million-share block trade last month? ITG POSIT is one of the earliest and largest “dark pools” for matching up institutional buyers and sellers outside the noise of the market. It combines trade-execution with analytics to offer the buyside efficiencies. Yet ITG’s revenue, trading volumes, and profit are down versus 2009 because, according to ITG’s earnings release out Feb 3, 2011, “continued low levels of trading activity by domestic long-only institutional investors negatively impacted our client mix.”

ITG competes with both exchanges and big broker-dealers like Goldman Sachs and Morgan Stanley. So if ITG sees flat long-only institutional demand, and big exchanges are merging – the London Stock Exchange is also marrying the operator of the Toronto Stock Exchange – what’s going on?

Answer: big brokers are controlling the supply of securities liquidity. Here’s the irony. Regulators decided back in the 1990s that intermediaries – the network of broker-dealers comprising the National Association of Securities Dealers – were making too much money. Stock trades were decimalized. The Global Settlement of 2003 between Elliot Spitzer and major bulge-bracket firms effectively ended capital-formation predicated on valuable research. The aim: To “level the playing field.”

The result? The exact opposite. Instead of shrinking the power of intermediaries, these same brokers are now threatening the whole exchange construct.

Want more irony? Gigantic broker-dealers would have gone largely extinct in 2008. But governments, now desperately dependent on the very same brokers to make markets in government securities comprised of wasting fiat currencies, gave them free access to public purses and treasuries.

No surprise, they feasted. Thus, with the phrase “too big to fail,” government set in motion what now may transform the seminal emblem of American capitalism. There is a tangled web strangling the Buttonwood Tree.

Last Friday I was in Dallas (seventy-five degrees warm) for a trading panel discussion at the NIRI Dallas-Fort Worth chapter. Also Friday, the Market Structure Map from last week on artificial liquidity ran courtesy of Joe Saluzzi at the Themis Trading blog, and at Welling@Weeden, Kate Welling’s respected letter at Weeden & Co. (many thanks to both generous hosts). Today against a rocking backdrop of geopolitical unrest, rising global inflation, commodity uncertainty and cold winter weather, US equities are rolling.

Talk about wild temperature swings. Higher prices are nice. We loved them in home values too five years ago. There is no better way to be cool in the IR chair than riding a hot stock. And most times, your executives think your share price is undervalued.

But don’t you wonder, just a teensy bit, how come the prospect of the Suez Canal disappearing into a dark pool isn’t mildly sobering? We had four clients up 5-7% today, five down a little, and the vast bulk up equal or better than the market. Really?

The old adage was “for every buyer there must be a seller.” On the floor of the NYSE, the old specialists ran a book and monitored the crowd and committed capital now and then to smooth temporary imbalances. By the way NYSE companies, you lost another source of trading information last week when identification was removed from order flow hitting floor booths. It’s just liquidity now, a commodity.

“Artificial liquidity” is trading volume that does not exist of its own accord. It’s paid to be there. Mercenary shares. Traders and market makers can get them from anywhere, so long as the need for them does not move outside defined parameters (this is partly why exchanges and regulators want to control the movement of every security with circuit breakers). You can get 100 shares of anything, anytime, anyplace. Why do you think the average trade size today is close to 100 shares? In some massively machine-traded stocks, you can always get 500 shares because there are always five trading systems with 100 shares available.

Where does this mysterious equity ether come from? Over there. Literally. For instance, the Nasdaq’s “rebate,” or payment for order flow, (all approved by the SEC, as is every rebate, so we can’t just blame the exchanges) encourages selling at the Nasdaq and buying at the Boston Stock Exchange, another Nasdaq property. A trader goes over there and buys and offers the shares here. If shares move back and forth, it generates transactions and data for the exchange, which drive revenue, and it supports the ebbing and flowing demand on algorithms.

That seems good. But in essence, markets about 80% of the time now only need either a buyer or a seller, not both. How? If I buy 100 shares at the Boston Exchange, I’ll take them from somebody’s standing order. If I buy 200 now, I will alter all the behaviors, and machines will begin plucking shares from various points and pockets and places, and offering them in front of my order. And those shares could pass through eight machines that are not buyers or sellers at all, but intermediaries. So for eight of ten trades there was only one purpose – moving the shares.

Multiply the effect. What you see are liquid markets with low volatility. What you get are markets in which prices have been manufactured by machines. And this is what we’re getting right now. Part of it is because there is a vast sea of dollars, and dollar-denominated markets are best right now, so machines manufacture liquidity ahead of demand.

This works so long as nothing sloshes mercenary shares outside defined parameters, causing them to quit. But it also means that most times prices aren’t set by real buyers or sellers.

As humorist Dave Barry would say, “We are not making this up.”

Anyway, after sharing the Hyatt in downtown Seattle with the Kansas City Chiefs (convincing victors Sunday), we returned to Denver Monday, body-scanned once but otherwise briskly processed through airport security. So we’re a day late with The Map.

Speaking of body scans, the SEC’s current insider-trading probe is poking at the squishy Wall Street practice of rebating trading costs with “soft dollars.” We should know about soft dollars in the IR profession. Chances are, the last sizeable institutional position taken in your stock involved them.

The soft-dollar tale is twisted and winding. It’s another lesson on the foibles of policies predicated on exceptions to rules. Our story begins in 1975, when regulators and congresspersons decided that cash on the barrelhead was a quaint, anachronistic notion unfit for a society increasingly enamored with convolutions. Better if the exchange of valuable services involved paperwork, puts and takes, and accounting gimmicks.

Obtuse? Only in part. From the late 1700s, the Buttonwood Agreement governed cash on the barrelhead trading. It was two sentences long and said that brokers would trade with each other and charge the same commission. From it came the NYSE. Since commissions were fixed, brokers differentiated themselves by bundling proprietary research with trade executions. Business 101. Separate yourself from competitors on service, not price.

With the Securities Acts Amendments of 1975 came the death of fixed commissions by congressional decree. By doing so, government put the focus on price rather than service. Confusion bloomed. The SEC Act of 1934, along with the Investment Advisors Act, the Investment Company Act (both in 1940) and the Employee Retirement Income Security Act (ERISA) of 1974, all placed restrictions on using client funds for brokerage services. But with commissions and other services unbundled, how were advisors to obtain research? How were brokers to differentiate themselves on any basis but price if fiduciary duty required institutions to pay the lowest possible commission?

Ah, the unintended consequences. Congress had to amend the Exchange Act of 1934 with Exception 28(e), since one law was now contradicting three other laws. With that exception to the rule, Soft Dollars were born. This safe harbor gave institutions and brokers the ability to use client funds for other services, so long as a good-faith belief in benefit and reasonableness buttressed the decision.

Well, disputes arose. Investigations ensued. The SEC issued a series of interpretive rulings, some reversing or contradicting earlier positions. Entire businesses such as Investment Information Inc, flourished, helping brokerages and their clients manage soft dollars, only to be wiped out by revised SEC views of what constituted compliance. From 1986 to present, interpretations have pulsed, coalesced, dimmed, brightened, flashed and fluctuated. And soft dollar programs exploded after Eliot Spitzer’s 2003 settlement with the sellside deprived brokerages of the capacity to associate research and trading at all.

Here’s an irony. Heavier soft dollars come from large investors that buy and hold stock. Why? Trading costs can eat up returns. Soft dollars offset that impact. So, it’s likely that position-building by large institutions will include soft dollars.

Now the SEC believes nefarious deeds lurk in the soft-dollar cesspool. No wonder. It’s a complicated construct. It demands good faith, the sort of thing in short supply with those who want to cheat.

It also demonstrates that replacing two sentences between businesses with reams of federal registry entries is neither healthy nor expedient. And it’s what happens when buyers stop paying sellers and turn instead to byzantine intermediary rebate and allocation schemes – the same notion that underpins maker-taker trading markets, social programs, defense spending, and health care in the United States.

Hm.

Occam’s Razor. The law of economy. Simplest is best. The 14th Century Franciscan Friar Thomas of Ockham (Occam) wrote that “entities must not be multiplied beyond necessity.” Maybe we could learn from the good friar.

Soft dollars are the opposite of hard dollars. Which would we prefer?

The allegation, if you missed the story of the week outside South Korea, Ireland and Cambodia, is that funds are using “channel check” style information to gain an illegal advantage. Federal agents have swept into capital-markets concerns to seize files and persons and stop this pusillanimous peculation.

The last time government contended information misuse, machines took over the trading markets. In 2003, Elliot Spitzer settled with major banks ranging from Bear Stearns and Lehman, to Goldman Sachs and JP Morgan, to Merrill and UBS to strip research from trading. The former was apparently unfair. What exploded after was algorithmic trading, which apparently is not unfair, even though the firms dominating it are a handful while the people using information were everybody else, such as grandma.

Before we call for the heads of the accused, let’s consider what other noggins might land under the guillotine. The heads may be ours. What if investors, petrified to be found, to borrow from Fiona Apple, feelin’ like a criminal, turn fully to machines? The last light will blink out on rational investment, the soul of IR.

We’re not excusing bad behavior, if it exists. But in this contemporary machine market, channel checks are an unethical advantage? Pardon our collective smirk. Issues like Cisco, EMC and Intel price thousands of times per second. Cisco trades 200,000 times a day. Pick a stock. Likely, 90% of volume is maker-taker algorithmic churn for volatility trades or continuously fluctuating “risk-transfer” asset rebalances.

We are a data firm. We’ve spent tens of thousands of hours studying the interaction of executed trades. Rational money changes prices. But any that strays from the math causes reactive ripples. It’s how we know when deal speculation exists, whether good or bad money responds to news or information, and where real price is versus the one manufactured by machines.

Speaking of which, IR folks and execs, if you don’t know your market structure, you’re living dangerously. Not only will it defend your board against recrimination – because it shows whether performance reflects fundamentals or math beyond its control – but it will tell you if something untoward lurks beneath price and volume.

Maybe some tried to capitalize on something somebody else didn’t know. Once, the point on Wall Street was to differentiate your opinion on investments with information that others didn’t have. That’s what made it valuable. What made it competitive is that you could be wrong. Competition teemed, values efficiently reflected all information known or otherwise, and markets produced returns over years rather than seconds.

What I fear is that the IR profession will fall dumbly in line. We’ll praise swift government action. And investors will stop thinking and hand their dollars to computers. Out will go IR as a viable function. People will trade derivatives, too scared to exercise sentient thought about equities for fear black helicopters might swoop down.

We have courts and a Constitution. Like Big Lots, if a company or its holders believes harm has been done, they may petition the court for standing and redress of grievance, just as anyone can. Government lately seems to be petitioner, prosecution, judge and jury in one. If the government is your accuser, how then is the Constitutional right to face your accuser guarded?

So this Thanksgiving, let’s stop looking for somebody to blame and start saying thanks for the right to be counted individually rather than algorithmically. It’s what life and investor-relations are both about.

We wonder what Pascal would think of the 523-page Final Rule for Regulation National Market System (Reg NMS), published August 29, 2005. Step forward a half-decade, and it explains why deep and liquid markets that were thought to foster the interests of long-term investors have instead fed a fragmented maker/taker market system florid with high-frequency traders moving the same shares from place to place.

And why we have eleven stock exchanges, and counting, on the fruited plain. Word has it that more are in the pipeline from each big operator.

One of the five aims of Reg NMS was to re-write the “Market Data Rules” governing trading data and revenues derived from it. Did you know that Reg NMS dates to Congress in 1975, which passed legislation calling for a managed national market system to “improve competition?” Thirty-five years later, the carnival continues.

Trading generates data. Data flow to a consolidated facility for dissemination, so folks getting information at Bloomberg, Yahoo and elsewhere can know how many shares of a stock have traded. That data generates fees. Exchanges and markets share the revenue.

Congress and the regulators wanted to shift focus away from the number of trades, a key driver of the old revenue-share model. By 2005, when Reg NMS was passed –implemented in 2007 – the SEC opted to allocate revenues by share of volume and quotations, rather than by trades, to minimize “order shredding.” Only automated quotes would be eligible, to prevent manual quote-manipulation for more revenue from the data.

We realize this is the kind of gripping stuff that keeps you on the edge of your seat. Like that new Natalie Portman movie “Black Swan” (also a trading term) that Karen and I saw in preview, courtesy of the Denver Film Society. Riveting and bizarre at the same time.

Back to the data. Reg NMS said tape revenue would be shared, but also that everybody could now own and monetize their “proprietary” data, the nuanced information on each platform. Thus every alternative system, every broker-dealer, every market center, could offer data products. And market share and quotes would drive the basic, consolidated data, such as volume.

The blizzard hit. The more market share you have as an exchange, the bigger your share of the pie from the consolidated tape. FINRA, the regulatory body that succeeded the NASD, proposed and received approval for a revenue-sharing scheme that depends on total market share for each Tape: Tape A for NYSE issues; Tape B for all the regional and electronic markets (lots of ETF and derivative quotes here); and Tape C for Nasdaq stocks.

How to get greater share if you’re an exchange? Operate more exchanges with specialty focuses, so you can increase your revenue from the tapes by rolling up a market-share number. The more entry points in a maker/taker environment, the better for exchange operators. Every sell can generate an incentive payment and each buy generates a “take” fee. Fragmentation helps exchanges lift the take fee and control the make payments, and every little transaction expands the marketable proprietary data stream, and at the same time reduces access fees paid to other exchange operators.

In short, you get what we’ve got. Fragmented data. A labyrinthine path to liquidity that masquerades as efficient and deep, through the guise of penny spreads and millisecond trades. And a colossal data cloud of such obtuse and opaque dimension that even Blaise Pascal the mathematician would probably wad up his letter and throw it away.

And issuer data? Not better, worse. Despite rules requiring parity for all capital-markets participants, issuer data have not kept pace with market behavior.

It’s the opposite of what regulators expected. This is a frequent result of well-intentioned efforts to manipulate human behavior around what’s “good” or “bad” rather than letting people and markets decide. Perhaps someday, we humans will learn that lesson before it’s too late.

And that’s why we have eleven exchanges, and why you know so very little about your trading. Somebody isn’t jobbing you; the system is.

The Buttonwood Agreement, in two sentences, worked better than every arcane machination we’ve manufactured since. Simple is best. We’ve all bought the bogus argument that a complex age requires elaborate rules. Really? How’s that working?

Karen and I are off to New York this week. Hope you on the east keep it warm for us!

But in the markets, pension funds have given stocks the cold shoulder, and fast. So says an article in the Wall Street Journal Monday, which traced the defection at noteworthy major corporate plans. Stocks comprise but half of plan assets now at best, and pensions themselves are in rapid decline as companies shift from defined benefits.

Less than five years ago, pensions had about 70% of assets in stocks. While public pension plans are still roughly two-thirds invested in equities, at some major corporate plans the goal is 30% in equities, or less. These pensions are moving to alternatives like bonds, commodities, private equity and so on, despite lower rates of return. Risk management is the top objective now, rather than maximum returns.

We could nod our heads approvingly. Sure, good. Managing risk is prudent. Maximizing returns is a risky gambit. But on the other hand, why invest capital if not for the maximum reasonable return? It’s surreal, even puerile, that we accept suboptimal objectives and define investment aims as “managing risk.” Remember when investing in diversified equities WAS managing risk?

And let’s think like investor-relations professionals. If money is fleeing the market upon which we rely, why? What is so afoul out there that managers of large assets think commodities make more sense than shares of growth enterprises?

Which gets us to our headline. “CEOs need to be asking questions,” writes reporter Jeremy Grant in a Financial Times article out Monday about the annual World Federation of Exchanges meeting, this year in Paris. There is open rebellion among exchanges about the state of trading markets.

Thomas Kloet from the Toronto Exchange told Grant: “The group that I don’t think we’ve heard enough from is the issuer community. What I think they don’t realize is that eight guys in a garage can trade their stock and effectively print (set the price for) that stock….”

On market fragmentation across multitudinous platforms, Antonio Zoido from Spain’s BME exchange said: “Ask the issuers. Do they want to be traded on all these venues? They don’t even know they are being traded on all these venues!”

Grant himself mused: “If I am a company CEO or investor relations officer, do I really understand where and how my company’s shares are traded these days? Probably not.”

Automated trading pioneer Thomas Peterffy, who founded automated global electronic market maker Interactive Brokers and keynoted, bluntly summed up the state of things: “A complete mess.”

There is perhaps been no more opportune time in a half-century for public companies to help reform our capital markets into an attractive, substantive place for investment dollars again. We can win back investors if our markets work. And since public companies are the heart of the market, they should be leaders in tuning the debate to capital formation.

By extension, investor-relations professionals should define the data that informs the job. IROs are not traders or investors. They are vested with a public responsibility, and with it comes an implicit right to know who trades the shares held by the audiences they serve.

Along with Larry Leibowitz from the NYSE and Minoj Narang of Tradeworx, 60 Minutes interviewed Joe Saluzzi from Themis Trading (read their white papers about trading). Joe was on my panel about modern trading at NIRI National in 2009. Few people are better at explaining the peccadilloes of a market structure based on price and speed.

Here again is the problem, simplified to its most basic elements: Trades must meet at the best bid or offer. The participants able to get to the price fastest will always set the price. And because the exchanges and regulators alike have embraced a “maker/taker” model in place of the old auction and automated quotation systems, transient money is always setting your price. Yes, it requires the presence of something else underneath it, as the Flash Crash illustrated. But the structure, not the behavior, is the problem. The behavior is precisely what one would expect from the existing structure.

We think the solution is elementary, and we’ll come to it shortly. IR folks, here’s where you can exercise leadership. Investor Relations generally thinks and acts as it did before the Order Handling Rules forced exchanges to display prices from other markets, and before the Spitzer Settlement turned the sellside into information technology departments for the buyside, and before Reg NMS turned everybody trading equities into speculators.

Now at least, we realize something’s awry. Investment behavior isn’t setting stock prices often. In fact, value investment behavior prices according to criteria that are diametrically opposite of price and speed. But in order to buy shares, value buyers must abandon their core investment philosophy and act like intermediaries, racing from one minute price point to the next. In a sense, they’re forced to speculate on small moves.

The general posture of investor relations and corporate communications is to avoid discussing the markets. Well, these are our markets too! The SEC Acts – flawed though they may be and needing redacting – codify capital formation as the principal purpose. The acts require fair treatment for all constituents, and that means issuers and investors too, who are unconcerned about the number of price points between the bottom and the top of the book.

I’ll give you an example. When I first sat down in the IR chair in August 2001 at Surewest Communications, its stock listed on the bulletin board traded about 1,300 times… per month. Price was about $40. Compared against financial metrics such as pretax cash flows and earnings-per-share, it was a fair valuation.

When the stock moved to the National Market System, it soared to nearly $60 per share. When Worldcom, a giant and distant peer, filed for bankruptcy protection, it retreated nearly to $20.

The point is that the national market system and its relentless appeal to speed, price and trends, did not help the investors of Surewest. In hindsight, it might have been better to trade 1,300 times per month, with a value correlated to financial performance. The company had little more in common with Worldcom than a “telecommunications” tag.

IROs, CFOs, and CEOs, now is the time to voice concern about a structure created by regulators that impedes the formation of capital and disadvantages long-term holders. If you don’t, it won’t change, because the parties making the rules benefit from the existing structure.

Which leads us to our simple solution. It’s bothersome to me that, here in the US at least, our first response to a problem is to cast about for things to prohibit. Our governmental philosophy, which we seem to ignore when problems arise, is about unimpeded life, liberty and pursuit of happiness. Do we follow the SEC acts of 1933-34? One begins by declaiming the centrality of capital formation; the other enjoins against impediments to free markets and unfair advantages for some participants at the expense of others.

And what do we have? A capital market where Mail.ru, the giant Russian impending IPO, chooses London over New York. One in which price and speed horn out every other value metric, thus ensuring that only the fastest can play well.

The solution? Remove the price controls. Machines depend on patterns. Let them trade. So long as any other value metric can also play fairly. Machines using scraps of liquidity moved at great speed cannot trump a buyer placing an order for 500,000 shares $0.25 ABOVE the last price.

An unimpeded market would bring price and value back into correlation. The marriage of speed and price would no longer be the decreed, uniform denominator of every equity trade. Beauty would be in the eye of the beholder, as it should be.

Things will change when public companies speak up. Look at Joe Saluzzi, one trader at a small firm in New Jersey. He spoke up. Ears are open. Where is our Joe Saluzzi from a public c-suite?