January 09, 2013

NEW YORK -- TD Ameritrade Holding Corp introduced a trading tool on Tuesday that it said will shed light on small investors' engagement with the stock market, a sentiment indicator that can guide other traders.

Dubbed the Investor Movement Index, or IMX, it measures the ongoing risk appetite of the online broker's approximately 6 million customer accounts and will be published monthly.

It is based on positions of TD Ameritrade clients with $2,000 or more, who make at least one trade during the month, and is calculated according to a proprietary formula that scores each account on the riskiness of new positions taken during the month.

The company will offer the results on a public website with specific comments about its clients' most and least popular stocks. But it will give more "granular" detail about industry sectors and particular investor demographic preferences to its own clients.

No competitor offers a similar index and it will take them a while to develop the methodologies behind it, said Steve Quirk, a senior vice president of TD Ameritrade's trader group who specializes in options trading.

Charles Schwab Corp. does "quite a bit of analysis and measurement of investor sentiment," some of which it reports publicly, but has no immediate plans for an index, a spokesman said. A spokesman at E*Trade Financial Corp. did not respond to a request for comment.

In a somewhat surprising finding, the index rose in December amid the "fiscal cliff" debate on the U.S. budget after staying flat in October and November. That shows it can at times correct the damaging sentiment within the securities industry that retail investors pile in or out of stocks long after the "smart money" has moved, Quirk said.

Because the index is based on actual trades, it is likely to be more accurate than surveys of consumer sentiment by various groups and more reflective of retail trading than the CBOE Volatility Index (VIX) that is heavily influenced by institutional investors and professional traders, company executives said.

Steve Schnipper, a TD Ameritrade client from New Jersey who spoke on a panel at the index's introduction, said he might benefit from the index if TD Ameritrade shares index data with him from more sophisticated customers in options and other areas.

"As a standalone number it doesn't mean much," he said, adding that "the monthly schedule doesn't do a lot to show you current trends."

Richard Repetto, an analyst who follows brokerage firms at Sandler O'Neill & Partners, said the index may be moderately beneficial in revealing the hidden behavior of small investors.

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