Last week, the WSJ reported that there is a scandal currently gripping Japanese baseball. Attendance is down 10% during the last decade and Japanese baseball executives have scrambed to figure out a way to get attendance back up. They think that they came up with a great idea and juiced the baseball to get more home runs – 60% more home runs this year to be precise.
“There has been an explosion in Japanese baseball this year—60% more home runs than at this point last year. “This year the ball is really flying well,” Tohoku Rakuten Golden Eagle catcher Motohiro Shima was quoted as telling the Asahi Shimbun in April. “The sound of the ball on the bat and the lift is different. Maybe the ball has changed.”
But the problem is that Japanese executives at Nippon Professional Baseball (NPB) secretly arranged with Mizuno to juice the ball and didn’t tell anyone:
“We changed the rubber that’s inside the core of the ball,” said Keiji Kimizu, a spokesman for Mizuno.
“The fact that it was changed without consulting anyone, and that nothing was said before the season, heightens a sense of distrust about many things,” said Tadahito Mori”
Now, where have we heard this story before of executives trying to increase volume by doing things they know they shouldn’t be doing? Oh, that’s right, we see it almost every day at the stock exchanges. Whether its releasing data early to a subset of their highest volume clients, allowing an IPO to open even know they know there may be huge technological problems or just downright lapses in oversight, it seems that exchange executives have been caught “juicing the volume” over and over again during the past few years.
Just like NPB executives feel that more home runs are always good for the game, stock exchanges seem to feel that more volume is always good for the markets (and for their bottom line). Tight margins and shrinking volumes though have caused exchanges to continually cross the foul line. “Innovations” like special order types, enhanced mega-tier rebates and payments from ETP issuers to ETP market makers have all been created to juice the volume. Minor league exchanges like Direct Edge wouldn’t even be in the game if it wasn’t for their “juiced” rebates.
But all this juice is ruining the game. Volumes are being artificially created from arbitrages that have nothing to do with company fundamentals. Stock prices are highly correlated and valuations are being distorted. It’s time to get rid of the juiced baseball in the stock market and get the game back to a fair and level playing field.