Concannon on Stock Splits (Part 2)

Chris Concannon is CEO of Bats Global Markets. Today I will conclude analysis of his article “Stock Splits for the Middle Class,” which was recently published in Modern Trader magazine.

Concannon suggests targeting “buy and hold” investors (for which he provided no evidence) is somewhat classist:

     > While it’s nice for a company to say it
     > wants to attract long-term buy and hold
     > investors, failing to split a high-price
     > stock encourages small investors to avoid
     > a stock altogether or causes them to pay
     > a substantial penalty when they trade
     > such a security… One could argue that a
     > company’s refusal to split its stock is
     > a refusal to embrace middle class retail
     > investors with less investable wealth.

Concannon qualifies himself nicely here by saying “one could argue.” The argument would be stronger if he could provide some evidence that higher-priced stocks are eschewed by a significant number of retail investors. Maybe it doesn’t make a meaningful difference given the dominance of institutional traders but I would at least like to see some effort to offer more than empty claims, which I consider speculative and meaningless.

Concannon closes with the following:

     > When debating… the goal of making stock trade
     > better, we should also focus on… stock splits.
     > While this is self-serving to a degree, given
     > our per-share revenue model, the evidence is
     > clear that many investors would save money and
     > more investors could participate.

This, along with many ideas in the article, makes logical sense. Unfortunately many logical ideas in finance do not bear fruit. I am baffled as to why he says the evidence is clear because he provided no evidence in the article. If there is clear evidence then please show us! As written these are nothing more than hollow claims.

What is clear from this final paragraph is Concannon’s agenda, which I believe helps to categorize this article. As the CEO of a major stock exchange, his corporate revenue is proportional to share volume. I consider this article a marketing piece to encourage greater use of the stock split. I also consider this an editorial since it includes no supporting evidence. A table showing number of stock splits per year seems like a no-brainer to include. I probably walk away more skeptical since such simple data is not presented.

I believe we should always read critically for the most complete understanding. Reading critically includes understanding the writer’s agenda. Writers aim to persuade, which is in their best interest. Being persuaded is not always in the best interest of the audience, however. Critical thinking is a very useful tool to defend against being persuaded by lower-quality [sometimes false] information.