When the robber barons of old New York would gather like royalty to decide the fate of capital markets, they held few illusions about what their real goal was: making money for themselves. Today a new pantheon is gathering to excavate the channels of capital flow: Zarb, Grasso, Schwab, Komansky, Paulson, Purcell.
IROs should pay close attention as these gods of Wall Street alter the world around them. Two camps are coalescing over ‘fragmentation’, which describes the way stocks trade in different places through different intermediaries. The same block of shares might trade on the floor of the NYSE in the morning, pass from one Nasdaq market maker to the other in the afternoon, silently ‘cross’ between large institutions on Instinet in the evening, and again through a third market broker overnight. You can bet that the market intermediaries make a profit whether or not the investors gain from a trade.
The heads of Wall Street’s largest securities firms want to contain this whirlwind in a centralized market overseen by a single regulator. The NYSE and Nasdaq eschew such a ‘monolithic’ concept, as does Charles Schwab Corp, which makes handsome profits from funneling trades away from the central markets.
The interests of all these securities industry giants will be realized in one form or another. But what about the poor listed companies that, after all, actually form the market? If and when the robber barons get around to asking your opinion, what will it be?
Ideally, IROs will be right at the heart of the matter, acting as opinion leaders in a debate over transparency. A fragmented market obscures the movements of your stock behind cloudy layers of ECNs and intermediaries. Identifying your shareholders from one day to the next involves tedious and costly detective work by stock surveillance firms using whatever clues they can dig up. Institutional investors have taken steps to further cloak their trading decisions in secrecy. In today’s wired world, with good IR opening companies up to scrutiny, why should institutional investors continue to obfuscate?
As the markets reach a major turning point in 2000, and securities industry leaders jockey for position and profit, investor relations officers must make sure benefits come to the very listed companies the market is built on. That may mean a central order book, with the cloud cover peeled back to reveal the flow of stock. It will certainly mean navigating your way through the crowd of intermediaries to ensure public companies are heard clearly in the debate.
