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Exchanges Gain as Equity Volumes Hit 3-Year High

With the return of volatility last month, exchange volumes surged 29%, off-exchange share slipped, and one dark pool closed up shop, according to analyst market structure reports.

US stock trading volume increased 29 percent month-over-month in October to reach the highest average daily volume since 2011, according to Tabb Equity Liquidity Matrix for October 2014 released this week.

For exchanges, average daily volume increased from 6.1 billion to 7.8 billion, capturing the highest average daily volume since October 2011. Volume peaked on Oct. 15 with 11.9 billion shares changing hands, partly driven by swings in the yield on the 10-year Treasury note, Tabb’s US Equity Liquidity Matrix notes.

Three exchanges gained the most share: NYSE Arca’s share gained 1.3 percent; BATS BZW also increased 1.3 percent; and Nasdaq rose by 1.1 percent.

Across all platforms, New York Stock Exchange saw its total market share rise to 23.8 percent in October from 23.1 percent in September; Nasdaq garnered 20.8 percent, up from 19.7 percent; and BATS climbed to 14.9 percent versus 11.0 percent.

However, market share among exchange venues shifted significantly, according to Rosenblatt Securities’ report analyzing October US securities volumes. In equities, off-exchange share dropped 296 basis points, while BATS BZX, NYSE Arca, and Nasdaq gained 134,128 and 110 basis points, wrote Rosenblatt Securities in "Trading Talk." NYSE market share fell 69 basis points, month-over-month, it noted.

Volatility also jumped to the highest levels since June 2012, with the CBOE Volatility Index (VIX) average closing at 18 in October, up from 13.5 in September, notes Tabb. Alternative trading systems (ATS) and single dealer pools (SDP) volume jumped by 25 percent month-over-month.

Tabb’s report is based on 23 ATSs and 3 SDPs that report data to the research firm. There are 17 ATS and SDPs that do not currently report metrics to Tabb, though they are required to report to the Financial Industry Regulatory Authority.

Off-exchange volumes lost ground to exchanges. Dark pool volumes, comprising ATSs and SDPs, accounted for 35 percent of total market share at the two Trade Reporting Facilities and ADF volume. However, volatility and off-exchange dark volume continue to be inversely correlated, noted Tabb analyst Valerie Bogard in the report. Total market share going through the Trade Reporting Facility (TRF) and Alternative Display Facility (ADF) dropped by 3 percent from 35.6 percent to 32.6 percent.

Has an anticipated consolidation of dark pools begun? Wells Fargo's WELX Liquidity Cross ceased operations on Oct. 17, notes Tabb’s monthly report.

Dark pool trends
UBS’s average daily volume increased 26 percent to 132 million shares, up from 105 million shares in September. The top gainer was LeveL ATS, whose ADV rose 47 percent from 26 million in September to 39 million shares in October.

Three liquidity pools consistently have the largest trade sizes: Citi Liquifi with 83,640 shares, Barclays DirectEx with 62,091 shares, and Liquidnet Negotiated with 43,086 had the largest average trade sizes in October, based on ATSs and SDPs reporting to Tabb. Analyst Valerie Bogard wrote in a commentary that these three firms consistently have the largest trade sizes.

Average trade size dropped considerably among the top 15 ATSs for US equities reporting to FINRA. According to analysis by Tethys of FINRA data for the week of Oct. 13, the top five ATSs were: Credit Suisse (13.8%), UBS (11.45%), Deutsche Bank (7.1%), LavaFlow (6.1%), and Morgan Stanley (5.8%). This is based on data filed with FINRA by member firms for Tier 1 NMS stocks. The average trade sizes for Credit Suisse was 170 shares, UBS 148 shares, Deutsche Bank 186, Lava Flow 191, and Morgan Stanley 230 shares.

Analyzing the data, Tethys wrote, “Average trade size for the top ten ATS venues by volume is comparable with that traded on public, regulated exchanges and is quite stable for the reporting period.”

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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