Transferring with a shake of the collective head to our topic this 7 days, what is this thing identified as “substantial frequency investing,” IROs and execs?
Well, it would be a excellent identify for a rock band, but superior frequency investing is an indication of the conduct of revenue and a measure of marketplace hazard. It is liable for 20-30% or a lot more of volume at the moment. Pretty much speaking, it really is continuous, tick-by-tick, high-turnover acquiring and selling with true-time information to control chance whilst generating returns from moment modify. It truly is coming from all kinds of money sources, but really don’t blame hedge cash by itself. All financial investment advisors ought to put dollars to perform…and if they are unable to invest it, they’re heading to deploy it in other approaches. This is the greatest way suitable now. (Take note: Talking of which, search for funds to depart equities in pursuit of the Treasury Department’s absurd lending facility for high-threat credit belongings as options expire subsequent 7 days. This will not be superior for equity selling prices.)
Both of those Nasdaq OMX and NYSE Euronext announced latest charge changes designed to attract “superior frequency traders.” If they’re attempting to bring in it, it truly is since there is certainly a good deal of it going on, besides it’s occurring in other places. Here’s the telling aspect: each these exchanges created changes to the price of CONSUMING liquidity, or getting, although holding “rebates,” or incentives to deliver liquidity (yet another way to say ‘offering shares for sale, which appeals to buyers’) large.
This usually means there are changes at do the job in the broad marketplaces. Exactly where “rebate” buying and selling, or furnishing liquidity, is essential to helping regular institutional buyers like pension resources proficiently acquire and market big portions of shares, superior frequency buying and selling is dependent on practically equivalent and offsetting acquiring and selling in really tiny increments. That’s the variety of activity at this time dominating volumes (and why volumes are on the whole down, as well).
What does this necessarily mean for investor relations? We have constantly experienced a rather arcane profession populated with terms like direction, and Reg FD and earnings phone. Our capacity to grasp concepts that generally make other peoples’ eyes glaze about is a defining mark of the investor-relations expert. Properly, guess what? It can be going on all over again.
All this higher-frequency investing implies that significantly of the income going your price and volume sees higher equity possibility and scientific tests equity-markets conduct, not business fundamentals. This has been going on for some time but it is really getting worse and worse, and it is not heading to get much better whenever shortly. Therefore, IR individuals, it’s time to increase this know-how to your repertoire. Right after all, somebody’s gotta know what’s heading on out there – since the SEC evidently does not – and it could possibly as properly be us.
Seem, we are purposely aiming to make you chuckle right here. But I hope you’ll keep in mind this: effectively more than 80% of American firms (and about an equivalent quantity of European companies) hold earnings phone calls. However essential expense is accounting for about 15% of quantity at best. Hadn’t we much better understand the rest? We assume recognizing industry framework is as very important to IR now as earnings phone calls.
And it should not price you a great deal additional than your earnings calls, possibly. If it is, you happen to be having to pay also significantly. IR departments you should not need to have high-priced, out-of-date resources that never function in modern-day marketplaces.