Retail Order Flow Surges in Q3

Equity volumes and volatility dropped back down to recent norms during the third quarter of 2018 but picked up again in October as the reality of rate hikes, tariffs, and other macro risks accelerated into early Q4. Amid the growing uncertainty, individual investors returned to the market and retail order flow increased dramatically during the third quarter, to approximately 16% of order-flow. Larry Tabb highlights Q3’s top equity trading metrics.

Equity volumes and volatility dropped back down to recent norms during the third quarter of 2018 but picked up again in October as the reality of rate hikes, tariffs, and other macro risks accelerated into early Q4. The average VIX moved down from a recent peak of 22.5 in February 2018 to a second-quarter average of 14.9 and to a lackluster 12.8 in Q3. The VIX accelerated into October, however, averaging 19.4 for the month. Volumes also drifted down, to a daily average of 6.5 billion shares during Q3 from 7.08 billion shares during Q2. Off-exchange volumes moved higher, to an average of 36.8% during Q3 from 35.6% during Q2, before dropping down to 35.1% in October.

Tape A volumes/market share trended down through the third quarter and hit an all-time low in October of 46.9% of total trading volume. Though this was an all-time low, it was still 13 percentage points above Tape C volumes. In addition, while Tape B volumes declined through Q3 2018, as volatility picked up in October, they gained 3.5%, hitting 21.5% of shares traded. This was driven by an increase in market uncertainty and a bout of volatility, which caused traders to shift a greater percentage of their flow to ETPs, which typically are listed on Tape B.

Retail order flow increased dramatically during the third quarter, to approximately 16% of order-flow, as uncertainty and volatility pushed more individual investors back into the market.

The Nasdaq market pressed its lead among the 13 US equity exchanges, moving from matching 14.9% of exchange-traded flow in July to a 17.2% share in October. This mostly came at the expense of the NYSE, whose market share dropped, from 12.9% in July to 12% in October 2018.

The retail market heated up during the third quarter as Virtu poured on the gas and grew its market share, from approximately 18% in July to 22% in October. This came at the expense of Citadel Securities, whose market share declined, from 29.3% in July to 23% in October. In addition, price improvement remained on track during Q3, with an average EQ of 28.8%. While this did not match June’s record low of 27.4%, it was very close and remained exceedingly positive for retail investors. 

SIP market data costs remained consistent, at approximately $391 million per year. The average SIP revenue per share traded decreased on an annualized basis, from $0.024/100 shares (mils) traded during 2017 to $0.0225 mils, as annualized volume increased from 1.6 trillion shares traded during the first three quarters of 2017 annualized versus 1.74 trillion shares traded during the first three quarters of 2018 annualized.

TABB Group’s exclusive quarterly equity digest combines data from the SEC market structure website, SEC Rule 605 and Rule 606 disclosures, FINRA Rule 4552, self-reported Single-Dealer Platforms, exchange order type information, and the SIP. To learn more,  please contact TABB Group  for details on our latest report, the “TABB Equity Digest: Q3-2018,” by Larry Tabb.

TabbFORUM is an open community that provides a platform for capital markets professionals to share their ideas and thought leadership with their peers. The views and opinions expressed are solely those of the author(s). They do not necessarily reflect the opinions of TABB Group, its analysts, TabbFORUM and its editors, or their employees, affiliates and partners.

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