Equity Volume in August Slips: TABB Group Liquidity Matrix

Equity trading volume continued to ebb in August, Morgan says, but some dark pools picked up market share.

Trading volume dropped in August to their lowest levels of 2010 across U.S. equities. Aug. 30 marked the consolidated tape’s lowest day of the year, with an average daily volume of just 5.7 billion shares. The sluggishness does not appear to be just a summer slowdown as overall volumes for August were off 2% from August 2009 and down 15% from July 2009. Low volumes are a reflection of discouraged investors who have lost confidence in the market. That’s perhaps not surprising considering even the president is saying that while the economy is growing, “it’s not growing as fast as it needs to.” (Click here to view the August Liqudity Matrix.)

Winners and Losers

Some dark pools, however, have managed to boost their month-over-month volumes. LeveL experienced record market share as a percentage of the consolidated tape in August, reaching 0.87%, compared with 0.08% in July. Morgan Stanley’s MS Pool also experienced a slight increase in average daily volume to 56 million shares a day from 53 million shares in July. In the lit markets, volumes declined across the board with exception of the CBOE Stock Exchange (CBSX), where volume nearly doubled month-to-month to 47 million shares a day, and NYSE Amex, where volume was up 38% from July to 21.4 million shares a day. 

Dark Reporting

As volume declines, dark pools and exchanges continue to fight over what little is left of liquidity. TABB Group currently tracks the volume of 14 dark pools in the Liquidity Matrix report. The number of reporting dark pool changes has risen steadily since 2007 when the tracker was launched. In recent months, the number of pools that contribute monthly statistics has declined slightly. One possible reason for the decline is that pools suffering volume declines – whether from market declines or tough competition – are less wiling to publicize their performance.

BATS and Direct Edge

In August, BATS Trading received approval to launch a second U.S. stock exchange. This move will enable the company to capture more market share from the regional exchanges that offer cheaper access to the markets than majors like NYSE and Nasdaq. BATS’ stated hope is to provide a broader range of prices to its customers, capturing those who are looking for low take fees and higher rebates.
Direct Edge went live as an exchange in July and got off to a slow start. In the midst of migrating its users to the new exchange system, the exchange suffered a 29% decline in volume in July and a further 6% decline in August. This drop off is most likely a temporary consequence of the transition. The transfer to exchange status is expected to stimulate an interesting competition for market share. BATS’ second exchange will most likely be a direct competitor to Direct Edge, which also advertises fairly low rates.

Fee Changes

Keeping things competitive, NYSE, NYSE Amex and NYSE Arca have announced changes to their equities trading fee schedule for the fall. The most significant change to their rates was the implementation of an inverted pricing scheme on NYSE Amex. The fee to take liquidity for all customers will drop to $0.0013 from $0.0021 per share in Nasdaq-listed stocks. The rebate will remain at its current $0.0019 per share. Fee changes have become frequent among all the public venues, with more than 60 changes in fees on U.S. equity exchanges from 2007 to 2010.

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