Going by shaking the collective head to our topic this week, what is this thing called “high frequency trading”, IROs and performers?
Well, that would be a good name for a rock band, but high frequency trading is an indicator of money behavior and a measure of market risk. It is currently responsible for 20-30% or more of the volume. In practice, this is a continuous buying and selling with a large turnover, with real-time data turnover to control the risk while generating returns from a minute change. It comes from all sources of capital, but don’t blame hedge funds yourself. All investment advisers have to invest money in work … and if they can’t invest it, they will deploy it in other ways. This is the best way right now. (NOTE: Speaking of which, look for money to leave stocks in pursuit of the Department of Finance’s ridiculous facility to lend to high-risk credit assets as options expire next week. This will not be good for stock prices.)
Both the Nasdaq OMX and the NYSE Euronext have announced recent changes in fees designed to attract “high frequency traders”. If they try to attract him, it’s because a lot is happening besides happening elsewhere. Here is an indicative feature: both exchanges made changes in the price of LIQUID CONSUMPTION or purchase, while maintaining “discounts” or incentives to provide liquidity (another way of saying “offering shares for sale that attracts buyers”).
This means that there are changes in the operation of broad markets. Where discount trading or liquidity trading is needed to help conventional institutional investors such as pension funds effectively buy and sell large amounts of shares, high-frequency trading depends on almost equal and compensating purchases and sales in very small steps. This is the type of activity that currently dominates volumes (and why volumes in general are also declining).
What does this mean for investor relations? We’ve always had a pretty mysterious profession populated with terms like guidance and Reg FD and revenue call. Our ability to grasp concepts that often make other people’s eyes glaze over is a defining mark for a professional in investor relations. Well, guess what? It happens again.
All of this high-frequency trading means that much of the money driving your price and volume sees a high risk of stocks and studies the behavior of stock markets, not the basics of business. This has been going on for some time, but it’s getting worse and worse and it won’t get better soon. Therefore, people, it is time to add this knowledge to your repertoire. After all, someone needs to know what’s going on there – because the SEC obviously doesn’t – and so can we.
You see, we purposefully aim to make you laugh here. But I hope you remember this: well, more than 80% of American companies (and roughly an equal number of European companies) hold calls for revenue. Still, the main investment is at best about 15% of the volume. Do we understand the rest better? We believe that knowing the market structure is as important for IR now as revenue calls.
And it shouldn’t cost you much more than revenue calls. If so, you pay too much. IR departments do not need expensive, outdated instruments that do not work in today’s markets.