Market Structure Map

Helping IROs understand short-term market structure to maintain long-term peace of mind.

Nov 19-23—Short Week, Short-term Trading

With Americans out getting stuffed (British readers, apologies for the humor) last week, volumes dropped by half in our sample pool.

Some interesting items: three of Goldman's trading desks made our Top 25 list of total issues traded, including its crossing platform and wholesale desk; Millennium Capital and other big derivatives desks made our Top 25 volume list; wholesalers had nearly 9% of volume, and liquidity providers had only about 15% of the total.

What meaning lurks in these tea leaves? Short-term trading is prevalent, while rotation from, say, growth to value isn't happening. How do we know? If Wholesalers are buying and shelving more shares into inventory as market makers and the liquidity providers aren't needed…elementary, Watson, buyers are bashful.

One positive development: Prime program traders were back above 30% of volume for the first time in November, which simply means that some support still came from algorithms, despite the deplorable state of things for investors in US equity markets presently. Ironically, there will continue to be significant algorithmic undercurrents in the US equity markets, we believe, because traders can buy and sell securities in different currencies and perhaps capitalize marginally on spreads. And at least for now, these will be run by traders, not investors. We'd prefer that it be otherwise, but as we've said before, algorithms are like the cash register of the equity markets—essential for transacting retail business. So let's be happy with what we've got.

One last thing, the Wall Street Journal noted today that pension funds have been paring US holdings (something we've been observing and reporting to bigger clients for some time now) and will likely reduce overall allocations to US equities next year. All the more reason to make your outreach to them count—which means you gotta know your market structure, so you can knock on doors when yours best suits them. It's not just story anymore, IROs, but market structure too, that swings the buyside pendulum.

 

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Market Structure Map

Our weekly Market Structure Map provides unique insights — free — on trading markets, with an exclusive focus on helping investor-relations professionals keep cool in the IR chair.

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