The NYSE lobs back

Dozens of Thainians injured covering backs. NYSE admits years of promoting extraordinarily misleading program trading data

Not John Thain, but a real New York Stock Exchange employee nonetheless, responds to today’s post on its changed program trading calculation methodology headline number. [Comments noted HS indicates additional NakedShorts’ healthy skepticism – some might say irritating cynicism - and additional unsolicited commentary; PT is program trading].

A colleague of mine shared your blog entry with me this afternoon. While I respect and endorse a healthy amount of skepticism of any midstream change in methodology or data calculation, there are several reasons that your assertions are not legitimate in this instance.

[HS: Sez you. But we’ll let that legitimate crack ride while you dig your hole.]

First, in our previous PT releases we have offered 3 [HS: Emphasis added] ways to calculate program trading as an overall percentage of NYSE volume.

[HS: This is why previous releases and web-postings are headlined ‘Program Trading Averaged 67.4 Percent of NYSE Volume during June 19-23’ and ‘Program Trading Averaged 69.7 Percent of NYSE Volume during June 12-16’ ad infinitum. Those releases do contain a section starting “This is not the only way to measure program trading…” but

• The alternative numbers were not the ones in the headline, and are hardly those in common currency, due in large part to the NYSE’s highlighting of a number that it now concedes to be misleading. As well,
• The “This is not the only way to measure program trading…” section mysteriously disappeared from the Jul. 7, 2006, press release.]

This “new” methodology is actually one of those three, so in essence, its hardly “new” at all.

[HS: In essence? In every way it is definitely “new” as being the number the NYSE wants everybody to use. Now that the one it’s been using since time immemorial got, like, seriously embarrassing.]

Second, under the previous method PT could have reached 200%, a number that surely everyone would recognize as incorrect.  The older method effectively double-counted program trading – counting BOTH the buy and sell sides of a trade individually, then compared it to NYSE transaction volume that counts buys AND sells together as ONE trade.

[HS: In other words, you’ve been pushing a meaningless number for years. It’s in the market’s datastreams for anybody who cares. The Plunge Protection Team’s going to have to reset all its triggers*. Being the NYSE means never having to say oooops, let alone sorry.]

Third, in the email containing the news release we issued an explanation of the reasoning behind the change, a link to the historical file and even a pdf chart depicting the levels of PT since 2004, using both calculations.

[HS: NakedShorts did not get the “email containing the press release” and would merely note that if he was working in the NYSE’s communications department – which he’s not, for which fact etc etc – he would have advocated including the explanation of the change in the press release, at the top of the press release. Further, the explanation in the email containing the news release appears nowhere on the NYSE website, at least as can be found by the site’s search engine (which is, incidentally, provided by a NASDAQ-listed entity.]

We (the NYSE) stand firmly behind this new calculation as the most accurate and logical means to determine program trading as a percentage of the overall NYSE volume.

[HS: Well, until the next time you need another other way of convincing the great unwashed that the 16-inch laser-aimed guns mounted in the turrets of Global Megabank NA play no part in the battle’s outcome.]

The real question in my mind is, “Why didn't we change this sooner?”

[HS: That crossed my mind. But I suspect that if I just quit butting in you’ll tell us. Wait for it...

The 90% number that you cite [HS: Actually 92.2 percent] would have been so misleading that this change was necessary.

[HS: You’re such kidders. All those years, and it only becomes misleading when it tops 90 percent? My $5 - which your specialists kindly left me after the usual flensing, thank you - says that more than one hurried meeting took place after the system tossed out that 92.2 percent thing].

PT doesn't represent anything close to 90% of the 1.7 billion share volume on the NYSE market.

[HS: OK, I got it. But, you had us hooked on that old KoolAid, and you should’ve warned us you were switching to a new brand. Although it’s pretty clear you didn’t know yourself until last week.]

It is not our intention to "figguh" a more palatable number, however, it is our intention, and our responsibility, to report the most accurate number providing the best comparison to the public.

Well, if nothing else, that’s a nice change. Let’s just say that NakedShorts stands by his view that the change was made in a surreptitious and deceitful manner, for the simple purpose of shielding the NYSE from well-deserved opprobrium for a long history of promoting what it now concedes was an extraordinarily misleading program trading figure.

Kinda reminds us of the good old days when the short bald guy’s compensation hit the board agenda.

PS: For the elimination of doubt, NakedShorts is not whining about program trading per se; he saw Sink the Bismarck (several times, in fact) and is aware of the potential consequences of sailing his financial dinghy within range of Global Megabank NA. This disclaimer is considered necessary as the original post got picked up by that preeminent Tinfoil Hat website, LeMetropole Cafe. And he’s not encouraging that nonsense by actually linking to it.

* For the elimination of doubt, that was irony. While NakedShorts is always up for a good conspiracy theory, he doesn’t subscribe to the Plunge Protection Team (PPT) one. Even though PPT also stands for Paulson’s Program Trading. Hmmm....

Original post: If the numbers look bad...