Goldman And JPMorgan SPY Holdings Double Over Prior Quarter, And Other SPDR Observations

Tyler Durden's picture

Over the past 6 months, much attention has been focused on broker/dealer trading in ETFs, and more specifically, on the SPDR S&P 500 ETF, better known as SPY, which in the absence of material cash volume in intrinsic names, has become the de facto primary way to express a bullish and, to a much smaller degree, bearish bias on stocks. Previous observations by Zero Hedge and elsewhere have demonstrated odd accumulation behavior by major broker-dealers which have been speculated to use precisely this ETF, in order to "push" the market in one direction or another. Having done some micro-level research previously, we decided to analyse SPY patterns from a macro stand point. After compiling SPY holder data for the just completed Q4 2009 quarter, we have observed some very curious trends in SPY accumulation. To wit: in Q4, the 5 major market players saw a dramatic increase in their SPY $ notional holdings: specifically JP Morgan (combining both Asset Management and Private Wealth) jumped by 222%, Goldman Sachs saw a 45% increase, Merrill Lynch SPY holdings increased by 207%, and those of Deutsche Bank: by 256%. During this time Morgan Stanley was relatively flat, while probably the biggest surprise was Credit Suisse, whose holdings dropped by 48%, or nearly 24 million SPY shares, to 26 million in Q4. Keep in mind Credit Suisse had a record 2009 holding of 109 million SPY shares on June 30, 2009: it appears Credit Suisse ETF desk has decided to aggressively offload as many SPY shares as it possible can beginning in Q3, 2009. Altogether, we observe a decidedly positive correlation between B/D SPY holdings and the performance of the broader market.

Taking into account these moves, the top holders of SPY are now as follows:

At this point we need to caveat these findings with some observations. When it comes to SPY positions, it has long been a prevailing assumption that SPY holdings are merely a hedging instrument to underlying holdings in individual names, whereby the risk associated with a basket of S&P stocks is offset by shorting the SPY. Alternatively, shorting unique stocks can be hedge by going long the SPY. While we have information that over the past 2 quarters this has no longer been the norm, a question arises if by this major jump in SPY holdings for the bulk of the broker-dealers, have they in essence gotten short underlying names? And a further follow through, is whether these holdings are simply for the banks prop accounts or are these positions simply flow offsets as equity traders at the biggest B/D's hedge their client exposure risk? At this point we can not answer all of these questions definitively, although we are gathering sufficient information to provide much more color over the next few weeks. Until then we can only share factual observations, and let readers derive their own conclusions.

So on to the observations.

First, we should note that of the top 10 holders, one several names actively shift and rotate in and out of SPY exposure. Some names such as BMO, RBC and Bridgewater tend to have a flat SPY holding, which barely fluctuates over time. As such we focused on the other, "usual" suspects: Morgan Stanley, Goldman Sachs, JPM (both Asset Management and Private Banking), Credit Suisse, Merrill and Deutsche. The trend among the holdings of these key players is one of major accumulation, with one notable exception: Credit Suisse. The Swiss Bank has been massively dumping SPY holdings since Q2 2009, after having spent nearly 4 years to build up a position that at its peak was almost as big as the other key players combined. Yet what is even more obvious, is that the core 5 players, absent for Credit Suisse, are now back at record all time ($ notional) holdings in SPY at just under $23 billion. This compares to a mere $14 billion in the quarter before, and $10.3 billion in Q2 2009. Absent all possible complexities, it appears that the five major banks now clearly use SPY to track the broader market.

We currently have no explanation for Credit Suisse's very aberrant behavior in light of this major accumulation spree by all of its other peers.

Looking at individual firms, we notice similar patterns of trading activity.

Starting with Morgan Stanley, the firm which has recently had its fair share of quant problems, we can see just why MS may have decided to take some time off from being the dominant player in the SPY market (its Q1-Q3 SPY holdings of over $15 billion are a B/D record). While this chart is not very unique, one glaring observation is the dramatic drop in SPY holdings in Q3 and Q4 of 2007, only to see its holding rebound with a vengeance in Q1 2008. Was the August 2007 quant melt down responsible for Morgan Stanley's departure from the SPY market at the time? This is another interesting topic which we shall pursue. If the answer is yes, it would appear that quants have a much greater propensity to dabble in SPY than expected, which also would imply a much larger prop exposure in the ETF (as opposed to simply flow) by Broker Dealers.

Next, we look at Goldman's SPY holdings. Sure enough, the firm that in Q4 became the second largest holder of SPY after MS, ramped up its ETF holdings substantially, increasing its share holdings by 37% (or 45% in terms of $ notional).  Goldman's holdings are now second highest only to its Q4 2007 exposure, when the market was at its peak. Goldman's SPY holding mimic the broader market quite well, as it is now only 22% off its all time high position.

Yet no bank shares JP Morgan's enthusiasm for the SPY. The chart below demonstrates the SPY holdings of its Asset Management and Private Banking divisions. The first saw its SPY holdings surge by 585%, while Private Banking increased by a very admirable 84%. We hope this answers some questions about JPM and whether or not the firm eliminates and recycles its SPY holdings at the end of any given trading day. JPM's combined SPY holdings are now higher than at any time ever in the past, at just over $6.6 billion in notional. We will keep an eye out on JPM Indications of Interest to correlate with which days JP Morgan accumulates the most SPY shares. At this point it is relatively clear that while JPM may be transacting on a flow basis, it is certainly accumulating a substantial amount as a prop trader.

Lastly, we need to highlight the biggest outlier: Credit Suisse. As noted previously, while everyone else has been lifting every SPY offer imaginable, CS has been dumping. Whether the share transfer has been merely a selling by CS to other broker dealers is unknown. What is known is that after many years of accumulating SPY, the Swiss bank is now allergic to this most valuable ETF.

We are currently compiling a secondary data set to go with the SPY, focusing on IWM, and other key ETFs, as well as offset activity by intrinsic names. Once all the results have been regressed, we will provide some additional observations on this most critical of ETFs for the current market.

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Fritz's picture

SPY = Command and Control.

"They" will never let the market crash ever again.



berated's picture

Thx, Tyler. Can anyone provide the link to Tyler's article where he proposes much of the recent market move occured due to futures buying in the afterhours? I searched but couldn't find it.

berated's picture

Thx, AR. I found that one, but I was looking for one that showed a line graph depicting the amount the market moved in regular session vs afterhours session. Does that ring a bell?

Anonymous's picture

Yes that graph was memorable. It was several months ago. Think this might be the link:

berated's picture

Excellent work, Anon! Thanks!

Bear's picture

I wonder if the same thing has happened in ES. This is the after hours SPY (i.e Prop Platform)

Lionhead's picture

Bear, refer to my example at comment:
From today's regular session.

Bear's picture

Great ... thanks for the images ... I trade ES all the time but have no access to bid/ask profiles (Optionsxpress). Where do get  the info?

Lionhead's picture

I trade with a friend; he trades futures, I trade cash markets. Both of us can see the depth of the market we trade & know what each market is doing, so we work in tandem. The links are to his screenshots from his trade platform. We call the PPT, Mr. 2k.  When Mr. 2k shows up, you know the "fix" is in. He adds or fades as required. I always have a slight edge when "Mr. Stick" (rally) shows up or when the 2:30 ramp begins.

Anonymous's picture

If anybody is trying to keep the markets propped up I dont quite see what they are achieving by doing that. CON sumer CON fidence is still slipping mightily - in fact things will get worse as people see the farce behind the market !!

deadhead's picture

Tyler....excellent investigative journalism.



AR's picture

DH / To your opinion, we believe the only thing that stops this insanity, is a "market implosion" to some large degree. In fact, none of us yet knows, what event will cause or precipitate it. Greece, Italy, Spain? Dubai, Iran? Maybe Japan? Hell, it could even be China for all we know. Internally, we are forced particpants, but probably like you and those above, we are very nervous, defensive, and staying nimble. This all is historic. Very little makes much sense. Which prompts the saying:  "When in doubt, stay out."  Sometimes one makes more money by doing nothing at all.  Hang in there our friend, and try to stay positive...

Click here (and re-read my post):  #240616 

deadhead's picture

I re-read and do remember those good words.

2 thoughts:  as to "when in doubt...." could not agree more.  People often forget that cash is a position and preservation of principal is critical.

I do think we are in a secular bear and there is at least a few years (if not more) ahead before the potential onset of a new secular bull.  As to: "we believe the only thing that stops this insanity, is a "market implosion" to some large degree." I am definitely inclined to think that an event of magnitude (and one or more is guaranteed to occur in this world, such is human nature.) will arise to slap the markets up side the head to stop the insanity,as you say i.e. bring the notion of risk back into the picture which transfers to pricing.  After that, I see a great likelihood of a long, slow, painful grind down in the equity markets not only due to the structural financial and economic conditions but perhaps even moreso to what I foresee as a significant rise in social and political unrest.

AR's picture

Very well summarized DH. Structurally, we firmly are of the opinion that these markets MUST, repeat -- must, purge themselves of the excesses, and imbalances, that have created and led up to the current environment today. We are very concerned about the increasing governmental controls, dominance, and policies markets now face. Internally, we are struggling on how to hedge this specific risk of gevernment influence (it's very difficult to do). Finally, we agree with you that this will be a long, slow, very painful grind. We do not think markets expect this to the degree we do on this point. Stay FOCUSED.  We'll talk later...

Careless Whisper's picture

WTF? JP Morgan and Goldman aren't banks. they aren't hedge funds. they aren't casinos. what are they? how do they contribute to society?


SteveNYC's picture

Their contribution is negative, as in a parasite. The greed of these parasites is such that they don't even care if they kill the host.

Ever heard the story about the scorpion and the frog?

KidDynamite's picture

tyler - i'm confused about one thing:  you analyzed JPM's asset management biz and private banking biz - which I'm sure you know are distinct from the B/D.  why?  said differently - that JPM data is client money - right? 

How are you drawing the conclusion "At this point it is relatively clear that while JPM may be transacting on a flow basis, it is certainly accumulating a substantial amount as a prop trader"  from the fact that their CLIENT ASSETS are owning more SPY? 

Bruce Krasting's picture

The Credit Suisse side is interesting. It could be anything.My guess is it is connected to the blow up last year between UBS/DOJ. The end result was that the American accounts were closed by the likes of CS and the other banks. They did not want to get hit like UBS did. Ejecto customers. Nice.

How much might have been at CS based on this number? In my experience only 10% of swiss money went to equities. More of it went to CHF and bonds. Based on this you come up with an estimate of US accounts with CS at $25b, about half what UBS had.

Of course that is just a guess...

Anonymous's picture

" We hope this answers some questions about JPM and whether or not the firm eliminates and recycles its SPY holdings at the end of any given trading day."

know what that means......THEY'RE HOLDING THE BAG!

deadhead's picture


More likely than not, if one accepts the ponzi nature of today's market and the distribution to the greater fool theory, they can distribute these shares over the course of several days, particularly in the market that we have had i.e. plenty of volatility.

The other consideration for those of us who believe the Fed is actively involved in the equity market is the Fed can simply buy the shares back at anytime.  For those who might say that JPM is still exposed if they are holding SPY at 110 and 2 weeks later it's at 95, I would suggest that a Fed purchase at par of some really shit paper from JPM worth 40 cents on the dollar might do the trick at making up any differences.



mattco's picture

Go back to Tuesday the 16th of February and look at XLF and IWM. GS bought 17 million shares in the a.m. all in large blocks. JPM bought a ton of IWM in their usual fashion (5000 share at once). So anyone who is saying that GS is buying for their clients is misinformed as $250 million is a big trade to put through all at once in something like XLF. It was a short trigger just like everything else they do. JPM has the strategy to squeeze using small trades for 30-40 min. Those trades equal millions of shares and have caused the Russell to spike continuously. Until this game ends or they decide there are no more shorts left the market will continue on its path to DOW 50,000,000. Good luck. 

10044's picture

Of course they've increased their holdings. They're the primary dealers of the FED I.e plunge protection team

Anonymous's picture

Trainer "knocked out" at California's Sea World !! Did Blackstone not buy out Sea World recently ? Did they (BX) introduce any new austerity measures ???

poor fella's picture

I tell ya, what sucks real bad is holdin SDS's tightly betwixt my butt cheeks waiting for reality to hit JPM right in their f**cking Sachs - God I hope they blink.. 

E pluribus unum's picture

You know what Jamie Dimon calls SDS?


Lube. Enjoy your time in the box

poor fella's picture

I can laugh at that... although Jamie must like pumice in his lube, cuz that's what it feels like.

Cognitive Dissonance's picture

Sadly, or fortunately if you are one of the Fed/Master of the Universe minions, the huge markets and millions of players affords the players of the Ponzi sufficient cover and plausible deniability that any article such as this can be safely shouted down, even if it is also plausible.

No one is going to see or recognize that which they don't wish to see or recognize. Since so many people are in up to their ears and making boat loads of money to boot, who in their right mind would stop this dance until the music stops?

Sound familiar?

Noah Vail's picture

Making boatloads of money from whom? If the volume situation is as claimed what we got seems to be ten banksters all jamming each other. Am I missing something here?

BTW Cog, where is the second half of your piece?

Cognitive Dissonance's picture

"Making boatloads of money from whom?"

From simply providing "liquidity", remember? They get paid by the exchanges just to play in the sand box. Even if they make little or nothing on the trade, they get paid to trade, which more than covers their expenses and then some.

"BTW Cog, where is the second half of your piece?"

Still mucking around in the brain cells my dear man. When I decided to break it into two pieces, I rewrote the whole thing into the first piece and have yet to write the second piece. Unlike the professionals that can push out stuff day and night, I'm a rank amateur and actually do struggle to write this stuff.

Most of it is finished up stairs, just below the rapidly depleting hair follicles. Now I just need to sit down and hash it out, which is the hard part. I really do wish it would write itself but it doesn't. I do have the title pretty well worked out.

"End of Empire - Waking Zombie Nations / Chaos, Control and Conspiracy." Needless to say, some people are going to get their shorts all bunched up but in reality it will focus on concepts. But that won't stop the myth keepers and thought police.

IveBeenHad's picture

oh man this has the beginnings of a good hollywood movie.  i cant wait to read the next chapter. 

JimboJammer's picture

Today  in  Greece  angry  crowds march  in  the  streets  of  Athens

>>  Chanting  >>  "  Burn  the  Banks  "   we  should  be  doing  that  here

in  front  of  J P  Morgan / Chase    and  Goldman  Sachs  in  NY  City..

Are  people  all   sleeping... ?    Did  everybody  give  up...?

I  hope  not... maybe  this  June   people  will  wake  up..and  march..

Chopshop's picture

tremendous analysis, some of the very best of ZH thus far this year. thanks for it, TD, sir !

a few thoughts in the dark:

1)  CS, JPM, GS are lead mkt makers of SPY and each have taken turns playing 'lead' machine-gun(ner) into MOC (mkt on close ~ 338 - 400, for equities / cash)

2)  think TD hit the nail on the head of the barbell, ie. pairing SPY longs against individual issue puts

3)  only sizeable thing to add would be that long SPY (to sit for clearing, settlement, T + 3, acceptably collateralized & markably visible leverage) alongside short ES hedge also makes sense.  SPY is best to use a swing-trading instrument since it 'needs' to clear, settle etc etc ... while ES may be employed over n over again without book-entry attribution ($ posted) so long as position is closed intra-session and is the simplest instrument to trade around almost any core holding with.

JimboJammer's picture

If  these  Big  Banks  had  real  "  Mark  to  Market  Accounting "

they  would  be  shut  down  by  the  FDIC  this  week...

Anonymous's picture

RBC Bank President Gordon Nixon - Salary $11.73 Million


I'm a commercial fisherman fighting the Royal Bank of Canada (RBC Bank) over a $100,000 loan mistake. I lost my home, fishing vessel and equipment. Help me fight this corporate bully by closing your RBC Bank account.

There was no monthly interest payment date or amount of interest payable per month on my loan agreement. Date of first installment payment (Principal + interest) is approximately 1 year from the signing of my contract.
Demand loan agreements signed by other fishermen around the same time disclosed monthly interest payment dates and interest amounts payable per month.The lending policy for fishermen did change at RBC from one payment (principal + interest) per year for fishing loans to principal paid yearly with interest paid monthly. This lending practice was in place when I approached RBC.
Only problem is the loans officer was a replacement who wasn't familiar with these type of loans. She never informed me verbally or in writing about this new criteria.

Phone or e-mail:
RBC President, Gordon Nixon, Toronto (416)974-6415
RBC Vice President, Sales, Anne Lockie, Toronto (416)974-6821
RBC President, Atlantic Provinces, Greg Grice (902)421-8112 mail
RBC Manager, Cape Breton/Eastern Nova Scotia, Jerry Rankin (902)567-8600
RBC Vice President, Atlantic Provinces, Brian Conway (902)491-4302 mail
RBC Vice President, Halifax Region, Tammy Holland (902)421-8112 mail
RBC Senior Manager, Media & Public Relations, Beja Rodeck (416)974-5506 mail
RBC Ombudsman, Wendy Knight, Toronto, Ontario 1-800-769-2542 mail
Ombudsman for Banking Services & Investments, JoAnne Olafson, Toronto, 1-888-451-4519 mail

"Fighting the Royal Bank of Canada (RBC Bank) one customer at a time"

HedgeAccordingly's picture

another solid article... very nice work. 

Quantum Nucleonics's picture

These holdings shouldn't come as a big surprise to anyone.  Borrowing at zero percent to drive up the value of your existing investments isn't rocket science.  You just gotta be ready to head for the exit when you smell smoke.

Anonymous's picture

May be worth to look at the IRS (OOCC) as well few banks have been jockeying for position.
HSBC used to be the fourth contributor to the interest pervasion and is now discreetly fading out when MSDW is the proud owner of the fourth position.

Anonymous's picture

Guys big holdings means they can sell call, buy puts, and sell to make the market go where they want to. Note they had had accumulation at all time high at market peaks. this is how you keep shorting aggressively without naked shorting. Because of dollar coast averaging you are still selling at a profit and making money all the way down also.

This is a very bearish sign to me.
It also tells us who has been rampig up the market when consumers aren't buying.

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