H R Block (NYSE:HRB)
Historical Stock Chart
5 Years : From May 2012 to May 2017
U.S. companies are becoming concerned that the country's fragmented stock trading sector has made it difficult to track their ownership and assess what impact corporate announcements will have on their share prices.
A group of companies plan to press lawmakers and regulators for greater disclosure about who buys and sells their shares each day, and why--a task complicated by the scattered nature and lightning speed of trading in the electronic age.
"Having good trading data are key to knowing what trading behaviors react to earnings and news," said Derek Drysdale, director of investor relations for tax preparer H&R Block Inc. (HRB).
With more and more trades arranged privately--rather than through the big exchanges--"it's more difficult to tell if real volume or just noise is causing our stock price to go up or down," he said.
H&R Block and other companies want a better view into where their stocks are being traded, and who's doing the buying, selling and shorting. Currently, issuers rely on officials at the exchange that lists their shares, or third-party services, to provide a window on trading.
Evolving U.S. market regulation has clouded that window. Thirteen domestic stock exchanges now compete for business against dozens of private electronic trading platforms, known as "dark pools," as well as Wall Street banks that trade millions of shares internally and then report them to market supervisors. In February, about one-third of all U.S. share-trading was done away from publicly accessible exchanges.
The shift, driven by regulators' efforts over the past decade to make markets more competitive for stock investors, has disadvantaged the public companies whose equity provides fuel for a market that trades more than 8 billion shares per day, according to analysis firm ModernIR LLC.
"We have a construct today that's antithetical to capital formation," said Tim Quast, managing director for the firm, which is leading the push for greater transparency into share-dealing.
H&R Block's Drysdale estimated that 60% of the trading in his company's shares was driven by high-frequency traders that are not long-term investors, with more than two-thirds of deals done away from its listing venue at NYSE Euronext (NYX).
Quast and others point to regulation as a catalyst for reorienting U.S. securities markets around speed and trading. A requirement that trades take place at the best price available nationally, alongside a lower bar for introducing new trading platforms, has slashed costs for retail investors and ushered in a generation of high-speed electronic firms that rapidly buy and sell across dozens of venues.
Amassing and analyzing market data is a key component of professional traders' business, but share-issuing companies frequently say they have little clue what drives much of the activity in their stock, causing headaches when trying to measure the impact of earnings reports or institutional interest in their company.
"For us, as the market activity continues to fragment, our data become less complete," said Matt Smith, treasurer for Consolidated Communications Holdings Inc. (CNSL), a telephone service company listed on the Nasdaq Stock Market. "It's disconnected from more transparency in other facets of the marketplace."
Exchanges, dark pools and firms that internally match up stock trades all report business into a "consolidated tape" which compiles daily trading activity. Public companies like Consolidated Communications and H&R Block want the Securities and Exchange Commission to direct the disclosure of broker data that goes into the consolidated tape, giving companies a closer approximation of the data that traders use.
"There is unfair discrimination in markets today," ModernIR officials wrote in a letter that the company expects will be signed by up to 100 companies and submitted to members of the House Financial Services Committee and the SEC. "This effort will level the playing field for public companies."
Representatives for NYSE Euronext, Nasdaq OMX, BATS Global Markets and Direct Edge had no immediate comment, but Quast said exchanges have not objected to the effort.
A spokeswoman for the Financial Industry Regulatory Authority, which oversees U.S. securities firms, declined comment. Representatives of the SEC did not respond to a request for comment.
The coalition of companies and ModernIR intend to firm up their group and formally submit their request to lawmakers in late March, in time to put the issue on the legislative agenda for April and May, Quast said.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; firstname.lastname@example.org