Market structure - What is it and why should I care? An Overview for Investor Relations Departments

What is the market structure?

In today's global, Reg NMS electronic equity markets, traders and investors react to the market structure. In general terms, market structure: the number, size, type and distribution of participants in a market.

Quantitative trading has become popular and successful because it manages risk through mathematical analysis of market structure. Results? Fundamental and quantitative investors is regular capital programs, algorithms, structured products (trading strategies designed to maximize returns and minimize risk by capitalizing on market-structure change), crossing platforms ... it goes on.

Here's the truth: that the act of investment is increasingly the domain of private equity, while the trade practice in search of alpha (divergences of rules) and beta (the degree of divergence) is the predominant form of today "invest" in equity markets.

Consider: The Nasdaq and the NYSE, Archipelago and Instinet after absorbing (and brut), are essentially ECNs. Trades on what remains of the floor of the NYSE are driven by mathematics and execute in 200 milliseconds or less. High frequency companies like Octeg (the commercial arm of the equity of Getco LLC), Renaissance Technologies, Citadel Derivatives, Millenco (hedge fund Millennium Capital) and bats moving billions of shares trading per month, often more than the largest global market trader Heritage Program, Morgan Stanley.

In addition, Goldman Sachs, now the world's largest hedge fund, grew revenues by 52% in 2006 to $ 38 billion, an all-time high investment-bank net income of $ 9.5 billion (after payment bonus of $ 16.5 billion) mainly on the strength of trading. And Fidelity is among the largest algorithmic traders. Wonder why?

So, IRO, if you are still practicing investor relations in the same old way, you're ill-equipped for Reg NMS markets. You must know the structure of your stock market. If you do not, you are the only participant in its market, it does not.

And why should I care?

If you conduct the program Investor Relations - messaging, shareholder-base goals, outreach, measurement - without considering the structure of the market, you are neglecting an essential aspect of what drives the decisions outside your target market. Risks? Inaccurate answers to why the equity appreciates or decreases. Time wasted on inappropriate messages for dissemination and market structure. Ineffective measurement of your IR program. Net effect: the reduced value to the table management, less functional relevance.

"But we focus on the business and let the stock take care of itself." Okay. Investors will always follow the money ... that's why they're pumping literally trillions of dollars in private equity. So go private. Or accept that short-term nature of equity markets today is in contrast to altruism. Then adapt by learning the new key value drivers embodied in market structure. IRO, the road is not that of a time. If - and your management team - want to navigate the stock market today, with calm confidence, you need to ingratiate himself with the structure of the market and make your friend .......