When we first brought the world's attention to the 330ET daily ramp in US equity markets, we were shrugged off as conspiracy wonks once again, but 2 years later - as trading activity has become increasingly focused in smaller and smaller windows during the trading day, so the mainstream media has finally been forced to admit that the US equity market has become nothing but Ebay - where everyone waits til the last second.
During the day, “people are watching the paint dry,” said Leonid Hmelnitsky, head of equities trading for Mellon Capital Management, a San Francisco money manager with $404 billion under management. “We’ve definitely seen the shift.”
Just as we noted 2 years ago, The Wall Street Journal reports across Wall Street, less trading is taking place at 3 p.m. or, in fact, most any time but the opening minutes and the final half hour.
The rising use of index funds, which generally prefer to trade at the close, is contributing to the shift. So are the scores of computer models sniffing out the best times to trade, when they have the greatest chance of matching up without driving the price higher or lower.
With the trend has come concerns about liquidity in the multitrillion-dollar U.S. stock market. As more volume migrates to the end of the session, liquidity—or the ability to buy or sell stocks easily at a given price—is harder to come by during midday hours, traders said. That makes trading away from the end of the day more costly, making it harder for traders looking to capitalize on favorable midday stock moves.
The shift also raises the prospect that stocks will be more vulnerable to outsize swings during low-volume trading hours in the middle of the day, an outcome that could expose investors, including retail stock buyers, to losses.
By the numbers it is quite stunning...
More than one in six trades in S&P 500-listed stocks took place between 3:30 and the 4 p.m. closing bell last year, according to an analysis by Ana Avramovic, trading strategist at Credit Suisse. The 17.8% of trades in that period compares with 13% in 2007.
For shares of smaller companies, 19.3% of trades were in the final 30 minutes, up from 14% in 2007. That is important because it can often be difficult for investors to trade smaller-company stocks without pushing the price up or down.
Even the closing minutes of trading have become more crowded. The final five minutes accounted for 6% of all volume last year, rising each year since 2010, according to Trade Informatics, a trading-analytics firm.
A growing reliance on computerized trading tools has accelerated the shift.
Such tools aim to lower costs and limit the impact money managers have on share prices. These include programs that dribble out trades at intervals, known as “volume weighted average price” algorithms. Their proliferation has led volumes to snowball at times when investors are already active, such as at the close.
“It just kind of feeds on itself,” said Joe Rodela, head of U.S. trading at Allianz Global Investors. “Volume attracts volume.” Mr. Rodela, who trades on behalf of portfolio managers at the $499 billion investment firm, said a greater share of Allianz’s own stock trades over the years take place later in the day. Trading later is cheaper and comes with less volatility, he said.
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How is this good for the retail investor?
“In the middle of the day... you have such a liquidity void,” said Joe Spinelli, who heads trading in single stocks for the Americas at Deutsche Bank.
Perhaps even more worrisom, just like in the US, so in the case of a clearly rigged stock in the world's biggest bubble - all the rigging takes place in the very end of trading...
A Financial Times analysis of two years of trading data of Hanergy Thin Film stock — more than 800,000 individual trades on the Hong Kong Stock Exchange — shows that shares consistently surged late in the day, about 10 minutes before the exchange’s close, from the start of 2013 until February this year.
To make it more clear what this means...
As The FT reports, a trader who bought HK$1,000 ($129) worth of HTF at 9am on every day of trading since January 2 2013 and sold those shares at 3.30pm each day, would have seen their money shrink to HK$635 by February 2015.
But if they held on for just under half an hour more each time, the HK$1,000 would have turned into HK$8,430. This calculation does not include overnight gains.
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Welcome to the Ebay Market... where every index is Hanergy.