Short-term Trading and Investor Relations

With the USA out getting stuffed last week, trading volumes dropped by half in ModernIR's sample pool.

Here is what we observed. Three of Goldman’s trading desks made our Top 25 list of total issues traded, including its crossing platform and wholesale desk. Also Millennium Capital and the other big derivatives desks made our Top 25 volume list. Wholesalers had nearly 9% of volume and liquidity providers had only about 15% of the total.

What does this mean for an investor relations department? Short-term trading is very prevalent, while rotation from, say, growth to value doesn't appear to be happening. How can we say this? If Wholesalers are buying and shelving more shares into inventory as market makers and the liquidity providers aren’t needed, this indicates buyers aren't showing up.

On a separate note: For the first time in November, Prime program traders were back above 30% of volume. Some support still came from algorithms, despite the present deplorable state of things for investors in US stock markets. We believe that there will continue to be significant algorithmic undercurrents in the stock markets because traders can buy and sell securities in different currencies and perhaps capitalize marginally on spreads. And, at least for now, these will be run by traders, not investors. We’d prefer that it be otherwise, but as we’ve said before, algorithms are like the cash register of the equity markets – essential for transacting retail business. So we will have to be satisfied with what we’ve got.

Finally, a Wall Street Journal article noted that pension funds have been paring US holdings and will likely reduce overall allocations to US stocks next year. This is something we’ve been observing and reporting to bigger clients for some time now. Another reason to make your outreach to pension funds count. This means you have to know your market structure, so you can knock on their doors at the most opportune time. It’s not just your story anymore, IROs, but market structure too, that swings the buyside pendulum.

Tim Quast is a fifteen-year Investor Relations veteran and founder and managing director of ModernIR.com, which parses and categorizes over a half-billion shares per week with its trading intelligence system, Equity Analysis. See how our customers are utilizing Equity Analysis to learn about program trading and investor relations. For more information, please visit: What is market structure?.