| Moving with a shake of the collective head to our | | | | small increments. That's the kind of activity |
| topic this week, what is this thing called "high | | | | currently dominating volumes (and why volumes |
| frequency trading," IROs and execs? | | | | are on the whole down, too). |
| Well, it would be a good name for a rock band, | | | | What does this mean for investor relations? |
| but high frequency trading is an indication of the | | | | We've always had a rather arcane profession |
| behavior of money and a measure of market | | | | populated with terms like guidance, and Reg FD |
| risk. It is responsible for 20-30% or more of | | | | and earnings call. Our ability to grasp concepts |
| volume currently. Practically speaking, it's continual, | | | | that often make other peoples' eyes glaze over is |
| tick-by-tick, high-turnover buying and selling with | | | | a defining mark of the investor-relations |
| real-time data to control risk while generating | | | | professional. Well, guess what? It's happening |
| returns from minute change. It's coming from all | | | | again. |
| sorts of capital sources, but don't blame hedge | | | | All this high-frequency trading means that much of |
| funds alone. All investment advisors must put | | | | the money moving your price and volume sees |
| money to work...and if they can't invest it, they're | | | | high equity risk and studies equity-markets |
| going to deploy it in other ways. This is the best | | | | behavior, not business fundamentals. This has |
| way right now. (NOTE: Speaking of which, look for | | | | been going on for some time but it's getting |
| money to leave equities in pursuit of the | | | | worse and worse, and it's not going to get better |
| Treasury Department's ridiculous lending facility for | | | | anytime soon. Therefore, IR folks, it's time to add |
| high-risk credit assets as options expire next | | | | this knowledge to your repertoire. After all, |
| week. This will not be good for equity prices.) | | | | somebody's gotta know what's going on out |
| Both Nasdaq OMX and NYSE Euronext announced | | | | there - since the SEC apparently doesn't - and it |
| recent fee changes designed to draw "high | | | | might as well be us. |
| frequency traders." If they're trying to attract it, | | | | Look, we're purposely aiming to make you |
| it's because there's a lot of it going on, except it's | | | | chuckle here. But I hope you'll remember this: well |
| happening elsewhere. Here's the telling feature: | | | | more than 80% of American companies (and |
| both these exchanges made changes to the cost | | | | roughly an equal number of European firms) hold |
| of CONSUMING liquidity, or buying, while keeping | | | | earnings calls. Yet fundamental investment is |
| "rebates," or incentives to provide liquidity | | | | accounting for about 15% of volume at best. |
| (another way to say 'offering shares for sale, | | | | Hadn't we better understand the rest? We think |
| which attracts buyers') high. | | | | knowing market structure is as crucial to IR now |
| This means there are changes at work in the | | | | as earnings calls. |
| broad markets. Where "rebate" trading, or | | | | And it shouldn't cost you much more than your |
| furnishing liquidity, is necessary to helping | | | | earnings calls, either. If it is, you're paying too |
| conventional institutional investors like pension | | | | much. IR departments don't need expensive, |
| funds efficiently buy and sell large quantities of | | | | outdated tools that don't work in modern |
| shares, high frequency trading depends on nearly | | | | markets. |
| equal and offsetting buying and selling in very | | | | |