Last week we pointed out that Jefferies group, one of the last few remaining non-BHC broker-dealers, has just experienced its single most disastrous drop in trading volumes, as its principal trading revenues plunged by 80% QoQ. This is merely confirmation of what we have been warning ever since we started highlighting the series of 20 consecutive outflows from domestic equity funds: banks will soon be forced to lay off thousands of people as the primary revenue driver for the bulk of Wall Street firms - stock volumes - is now gone. BofA and RBS have already confirmed they are letting people go. Next up: the electronic trading giants such as ITG, Knight and Schwab. And it will only get worse. As the FT reports, September trading volumes are already 8% below August's, which in turn was the lowest in 3 years! Of course, the Fed is fully confident that if the DJIA ends September at 11,000, investor confidence in stocks will return. We have one word for that - LOL.
The continuing decrease in volume reported by the US’s largest electronic trading groups has triggered a fear among analysts that the fall in market activity might be more than a seasonal phenomenon.
Trading-focused groups such as ITG, Knight Capital and Charles Schwab enjoyed upbeat second quarters when the European debt crisis sparked extreme volatility. As fear has given way to unease with the global economy, however, trading volumes have fallen sharply.
“You’re starting to see some real pain,” said Christopher Allen, an analyst at Ticonderoga Securities. “September is not a material improvement over August. Aside from possibly the US election, I’m not sure what the catalyst is for trading.” A record-long streak of outflows from equity mutual funds – now 20 successive weeks beginning in May, according to the Investment Company Institute – and reluctance by even normally bold hedge fund managers to take big bets has suggested that there are more than seasonal factors at work.
Mr Allen’s figures, compiled last week, show that trades for the trading industry are down 8 per cent so far in September from August, when trading fell to a three-year low.
And what is funniest is that the decline in volume is blamed on the (lack of) intervention in the HFT's daily attempts to pickpocket slow money institutions.
Diego Perfumo, an analyst at Equity Research Desk, said that efforts by global regulators following the May “flash crash” were reducing volumes by high-speed firms, which was making it more difficult for other investors to trade.
“Higher trading scrutiny combined with tighter regulation is drying up the liquidity provided by high- frequency traders. Lower liquidity is symbiotically affecting volumes from traditional investors,” he said.
Oh really? Has anybody been affected by the "decline" in liquidity in SPY, Amazon or Apple? Last time we checked the only three products that trade had no problem with hitting bids (of course, front run several trillion times by $0.0001 bids just ahead of the submitted one to get the price high enough so that the last HFT bagholder can offload to you). Instead of lying, perhaps Diego and his firm, which incidentally makes money from the status quo and sees to lose millions should HFT scalping be impaired, as it seems the firm provides "Execution services from ITG, Credit Suisse, BNY and Instinet", but oddly enough the FT did not feel relevant to disclose this blatant conflict of interest, should look at the primary cause for volume collapse: that confidence in stock markets is gone, period. Nobody dares to hold stocks overnight, as nobody still has any clue why the market crashes 1,000 point in the span of a few seconds. If anyone hopes to revive faith in the stock market without someone getting punishment for the most ridiculous market crash since October 1987, they have another thing coming.
Wall Street may have gotten off scott free from the greatest absolute household wealth destruction episode in history, but when it comes to capital formation, pretty much everyone save for a few vacuum tubes, have had enough. And luckily, that means that worthless HFT, and other high volume parasite traders, will soon be out of a job. No tears will be shed as equilibrium reestablishes itself, and those providing absolutely no value to the stock market will become extinct. If the market will not self-correct, the market will be forced to self-correct.