Summer 2014 Market Fact Book - Weeden & Co from our Summer 2014 Market Fact Book ... UBS, 11%...
Transcript of Summer 2014 Market Fact Book - Weeden & Co from our Summer 2014 Market Fact Book ... UBS, 11%...
Summer 2014 Market Fact Book
Weeden & Co.
Weeden Program Trading Group
September, 2014
Disclosure: This publication is prepared by Weeden & Co.'s trading department, and not its research department. This publication is for information purposes only and is based on information and data from sources considered to be reliable, but it is not guaranteed as to accuracy and does not purport to be complete and are subject to change without notice. This publication is neither intended nor should be considered as an offer or the solicitation of an offer to sell or buy any security or other financial product. Nothing contained herein is intended to be, nor shall it be construed as, investment advice. Information contained herein provides insufficient information upon which to base an investment decision. Any comments or statements made herein do not necessarily reflect those of Weeden & Co. LP
Weeden & Co. LP. Sources: See Contact Page
Highlights from our Summer 2014 Market Fact Book
We’ve got some good news and we’ve got some bad news in our Summer 2014
edition of the Fact Book. First, the bad news: the Summer of 2014 was the worst
summer for US volumes since Bloomberg began calculating consolidated volume in
2008, down 9% from last summer which was the previous low. This August found
a way to be worse for volumes than last August by over 4% despite a small bout
of volatility and increasing correlations as ETF market share rose to its highest
level in a year. The good news is that the market was up over 4%, and despite
macro concerns in the Middle East and Ukraine a “risk-on” trade persisted
throughout. The 50 lowest yielding and highest P/E stocks outperformed the
S&P 500 more than any other groups this Summer, up 9% and 8% respectively.
Market Structure and Regulatory headlines dominated the press this Summer,
with the SEC and Exchanges crafting one of the biggest changes to the
investment landscape since Reg NMS. Surprisingly, the Tick Size Pilot program
took a back seat to allegations of foul play in the Dark Pools of some of the
world’s largest banks. In case you missed anything, we provide a timeline of all
the market structure happenings this Summer and a more detailed review of the
Exchanges’ final Tick Size Pilot Proposal.
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71 Other Pools, 27%
CS Crossfinder,
12%
Barclays, 10%UBS, 9%
Deutsche Bank, 7%
Merrill MLIX, 7%
MS Pool, 6%
SigmaX, 5%
Lava, 5%
IEX, 4%
JP Morgan, 4%
KCGM, 4%
71 Other Pools, 26%
CS Crossfinder
, 13%UBS, 11%
Deutsche Bank, 7%
Merrill MLIX, 7%
MS Pool, 7%
SigmaX, 6%
Lava, 5%
IEX, 5%
JP Morgan, 5%
KCGM, 5%Barclays,
3%
Market Structure & Regulatory Updates
June
June 2nd
– The world gets it first look at
Dark Pool Market Share (left) as FINRA
releases Dark Pool statistics for Tier I
securities. The top ten pools combine for
2/3rds of the market share, with Barclays
capturing 10%.
July
August
Aug. 6th
– NYSE proposes to eliminate 12 order types
(including controversial PL Select order type) in a seemingly
benevolent move that lead to serious criticism as an
opportunity to back-door a rebate eligible Day ISO order
which critics called, ―perhaps the most powerful order type in
the HFT arsenal.‖
June 25th
– New York Attorney
General Eric Schneiderman shook
the investment community by filing
a complaint against Barclays
alleging ―fraud and deceit‖ against
the global investment bank for
practices it took in operating and
marketing its Dark Pool.
July 29th
– UBS says the SEC is
investigating its Dark Pool, while
Deutsche Bank and Credit Suisse
acknowledge they are responding to
requests for information regarding HFT
participation in their Dark Pools as well.
June 24th
– Despite their own committee
advising against it, the SEC ordered major
exchanges to develop and file a plan to
implement wider tick sizes for a subset of
securities pre-determined by the SEC. The
plans will also include a ―trade at‖
requirement on a smaller subset of
securities.
July 23rd
– Barclays fires back at NY AG
and seeks dismissal of Scneiderman’s
lawsuit. Barclays’ claimed the suit
contained ―clear and substantial factual
errors‖ and misinterpreted the law. Most
of the response surrounded different
interpretations of words used in marketing
material, with the bank humorously citing
Webster’s Dictionary multiple times.
Aug. 26th
– The
exchanges file a
finalized plan for
the Tick Size &
Trade-At pilot
program. The SEC
can approve the plan
following a 21 day
comment period.
More details on
Page 2
By the end of the summer, Barclays’ share of Tier I Dark
Pool volume dropped from 10% to 3% according to
FINRA data (left). UBS benefitted the most from Barclays’
demise, with Credit Suisse’s Crossfinder, IEX and
Goldman’s SigmaX taking a marginal portion of the flow.
Though some expected a rebound, there was no
improvement in Barclays’ market share numbers from July
to August.
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Tick Size & Trade-At Pilot Program Exposed
With all the talk these days about data gathering and dark pools, a surprisingly small amount of focus
was placed on the SEC’s landmark “Tick Size Pilot Program,” which was built throughout the summer
by the commission and exchanges. One could argue that this new regulation, which comes despite
concern from industry professionals and the SEC’s own sub-committee, is the single biggest change to the
market structure landscape since Reg NMS went into effect in 2007. In this quick one pager we highlight
some of the implications and nuances of the pilot program buried in the exchanges’ 36 page proposal.
Identification of Pilot Securities & Test Groups
What you may know: Securities eligible for the pilot program have a market cap below $5Bln,
Consolidated Average Daily Volume of one million shares or less, a simple average VWAP of at
least $2 over the measurement period, a closing price of at least $2 at the end of the measurement
period and closes above $1.50 every day during the measurement period.
What you may not know: The exchanges have come up with a convoluted selection
methodology called ―stratified random sampling.‖ All selected securities will be broken into
(ideally) 27 groups based on liquidity, market cap, and price (VWAP) relative to the rest of the
universe (low, medium, and high). Four hundred securities will then be randomly selected from
each of these sub-groups, and the remaining securities will constitute the control group.
Test Group I: Possibly the most confusing of test groups. These stocks will be quoted in $0.05 minimum
increments but may trade at any price increment that is currently permitted. For whatever reason, orders
entered in an Exchanges retail liquidity program may be accepted in increments of less than $0.05.
Test Group II: These stocks must be quoted and must trade in $0.05 minimum increments, both on
AND off exchanges with a few exceptions: midpoint, retail orders with price improvement of $0.005 or
better, and the ambiguously defined ―negotiated trades‖ (tied to any pre-arranged benchmark).
Test Group III: These stocks will have the exact same rules as Test Group II, plus the additional ―Trade-
At‖ caveat.
Trade-At “Prohibition” Explained
Given all of the exemptions (some more ambiguous than others) already allotted for each of the test
groups, we were most curious about how some of the initial Trade-At exemption language was clarified
in the final plan—unfortunately it wasn’t. Here are the major exemptions to Trade-At:
Orders of ―Block size‖
Retail Orders executed with at least $0.005 price improvement
The order is identified as an ISO
The order is executed by a venue that concurrently sent ISO orders to the venue with the best
displayed Bid or Offer against the full displayed size
The order is executed as part of a ―Negotiated Trade‖
Stopped orders for customers that are priced at the BBO when the stop is elected
With so many exemptions, you have to ask why even have a ―trade-at‖ rule to begin with? It looks like
for the most part, broker internalization (both electronically in dark pools and manually up-stairs) will
remain intact as it pertains to block trades, stops, and any other benchmark (VWAP, Close, Open) trades.
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Self-Traded Strategy Usage
August Strategy Breakdown
Strategy July ‘14 July ‘13
Stan
dar
d
Stra
tegi
es CloseIQ 8% 8%
POV 12% 8%
TWAP 3% 2%
VWAP 17% 47%
Arrival Price 2% 3%
Liq
uid
ity
Seek
ing
Bullseye 5% 10%
Capture 14% 6%
Ghost 8% 4%
OnePipe 30% 37%
Equity Fund Flows
Liquidity Seeking Strategies Dominate Flows in August
Bullseye5%
Capture14%
CloseIQ8%
Custom1%Ghost
8%
OnePipe30%
Arrival Price2%
POV12%
TWAP3%
VWAP17%
Global Equity Funds Took in over $30Bln this Summer
Bond Funds Pull in about $20Bln
$9,789
$22,742
$19,863
$2,933
US Equity International Equity Taxable Bond Funds Muni Bond Funds
Net Fund Flows (MM USD)
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Venue Market Share
921,252,776
649,193,674
582,700,617 527,946,028
398,798,970
193,384,208 138,990,483
26,689,369 20,992,994
NASDAQ NYSE ARCA Direct Edge BATs BZX BATs BYX Boston PSX AMEX
Average Daily Volume this SummerFor Major US Exchanges
NYSE11.69%
NASDAQ16.59% AMEX
0.38%
PSX0.48%
Direct Edge9.50%BATs BYX
3.48%
ARCA10.49%
Boston2.50%
BATs BZX7.18%
B/D Internalized & Other ATS
37.71%
Venue Summer '14 Break Down1
17%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
% o
f To
tal V
olu
me
ETF Market Share Rises with the HeatAugust Numbers Highest Since February
8,371
9,351
8,337 8,236
6,123 6,088 5,553
2008 2009 2010 2011 2012 2013 2014
Average Daily US Equity Volume for Each Summer Since 2008
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Summer Factor Performance
How to Read the Factor Analysis
Our factor analysis breaks down the S&P 500 into 100 groups based on the factors listed on the far left of the chart. Each row takes a factor (e.g. Market Capitalization) and sorts the S&P 500 into 10 groups of 50 based on that factor (called deciles). For example, the first row listed (Market Cap) is sorted from largest to smallest (as indicated) with decile one consisting of the 50 largest stocks in the index and decile 10 consisting of the 50 smallest. It’s important to note that a stock in decile one for Market Cap will likely not be in decile one for any other factor. For example, GOOG is in decile one for Market Cap, but decile 10 for Dividend Yield, as it does not pay a dividend. Blue shading means that decile outperformed the S&P, while red shading means the opposite. A simple spread analysis exists on the right which shows the capturable spread between decile one and ten. The growth vs. value decile ranks the S&P 500 names based on their weights in the growth and value 500 indices as described in the figure.
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Contacts
Matthew Ciccone Director of Quantitative Strategy Weeden Program Trading Group 203.861.9320 [email protected]
1 Venue market share reported by BATs, Direct Edge, BIDs, and Level Daily Trading summary
2All fund flows reported by Thomas Reuters Lipper Funds, formerly AMG
All Market Data is from Bloomberg or NYSE TAQ Disclosure: This publication is prepared by Weeden & Co.'s trading department, and not its research department. This
publication is for information purposes only and is based on information and data from sources considered to be reliable, but it
is not guaranteed as to accuracy and does not purport to be complete and are subject to change without notice. This
publication is neither intended nor should be considered as an offer or the solicitation of an offer to sell or buy any security or
other financial product. Nothing contained herein is intended to be, nor shall it be construed as, investment advice. Information
contained herein provides insufficient information upon which to base an investment decision. Any comments or statements
made herein do not necessarily reflect those of Weeden & Co. LP or its affiliates. 2011 Weeden & Co. LP.