The role of an exchange is...?
So yet another stock exchange merger/acquisition (Singapore and Australia) waiting in the wings. The consolidations seem to go on and on. However a fundamental question is over the role of an ‘exchange’ in today’s fragmented world, and whether IR should take an interest.
The traditional view is that exchanges provide a trusted place where companies can raise capital, and investors trade their securities at transparent, best prices.
The World Federation of Exchanges held a conference a couple of weeks ago. As at every technical conference the air was thick with its own language. HFT, internalisers, MIFID, Reg NMS, BATS....However an overriding impression was one of a highly fragmented market, which is only now starting to look outwards. The SEC reports that in the US that there is now trading across 11 exchanges, over 30 alternative platforms and 200 broker networks.
A company’s shares may be listed in London or New York, but they are traded across an array of new venues such as electronic communications networks, dark pools and broker networks.
The growth of algorithms and high-frequency trading (HFT) has added to the number and type of market participants.
On the one hand this is good as it helps liquidity. On the other hand, an IR team that does not know where, in what quantity and at what price their shares are traded, feels distinctly uneasy.
And does it matter that these high-frequency, algorithmic traders are not concerned with the equity story, or the financials, given the volumes being traded? The issuer community that has yet to engage on these issues, but I suspect will not stay quiet for long.
The traditional view is that exchanges provide a trusted place where companies can raise capital, and investors trade their securities at transparent, best prices.
The World Federation of Exchanges held a conference a couple of weeks ago. As at every technical conference the air was thick with its own language. HFT, internalisers, MIFID, Reg NMS, BATS....However an overriding impression was one of a highly fragmented market, which is only now starting to look outwards. The SEC reports that in the US that there is now trading across 11 exchanges, over 30 alternative platforms and 200 broker networks.
A company’s shares may be listed in London or New York, but they are traded across an array of new venues such as electronic communications networks, dark pools and broker networks.
The growth of algorithms and high-frequency trading (HFT) has added to the number and type of market participants.
On the one hand this is good as it helps liquidity. On the other hand, an IR team that does not know where, in what quantity and at what price their shares are traded, feels distinctly uneasy.
And does it matter that these high-frequency, algorithmic traders are not concerned with the equity story, or the financials, given the volumes being traded? The issuer community that has yet to engage on these issues, but I suspect will not stay quiet for long.
posted by Mark Hynes @ 1:54 pm
1 Comments:
At 7:57 pm,
Tim Quast said…
Mark, good perspective. We heartily concur that issuers should engage in the rule-making process. We'd argue that as good as "liquidity" is to maker-taker markets, it's not a necessary component of successful investment, only successful trading.
I could give example upon example. But our data show that rational investment actually declines, rather than increases, as a proportion of volume, when liquidity increases.
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