Trading Volumes Plummet, “Choose Not To Play”

“The problem here is, when the public becomes aware of the nature of the game, they may choose not to play. This is the problem not only for Goldman but for Wall Street as a whole if people choose not to play.”  

I made that statement in the midst of an interview two years ago while being interviewed by CNBC’s Mark Haines (may he rest in eternal peace) about Goldman Sachs. (For those interested you can access that interview here. My comments about Goldman specifically and this topic begin around the 3 minute mark.)

What have trading volumes done on the NYSE over the last two years?

They are down close to 30%.

How about over the last three years? Down over 50%. What is going on here?

Let’s take a deep dive and review this situation with the help of the Securities Technology Monitor which writes, NYSE Volumes Cut in Half, in Three Years,

NYSE Euronext said its dive in trading volume has deepened, in both stocks and derivatives.

Globally, its average daily volume in derivatives contracts was 7.0 million in February, down 21.4 percent from a year ago. Europe was down 35.7 percent and U.S. equity options down 9.2 percent.

The operator of the New York Stock Exchange, NYSE Arca and NYSE Amex said its trading in stocks in the United States was down 21.0 percent from a year ago.

Most notably, the number of shares that it traded in the month of February in NYSE-listed stocks fell below the level of activity of 2004 – and is half what it was three years ago, when the credit crisis roiled financial markets.

Activity in NYSE’s “group share” of NYSE-listed stocks was 23.7 billion shares in February 2012.

That compares to 29.3 billion a year ago, 32.7 billion two years ago and … 50.3 billion in February 2009.

The 23.7 billion shares in February 2012 compares to 28.2 billion in February 2004, according to statistics kept by NYSE Euronext on nyxdata.com.

In a given day, NYSE Euronext handled 1.8 billion shares of all listed stocks in the United States in February. That was down 21 percent from a year ago and 2.2 percent from January.

The exchange operator and technology supplier also said its European stock trading showed a decrease of 8.7 percent from a year ago, to 1.6 million transactions a day in February. But that was up 7.1 percent from January.

Its European derivatives products daily volume of 2.8 million contracts was down 35.7 percent from last year and 11.9 percent from last month.

I do know that volumes at other exchanges such as BATS have increased as a percentage of total volume over the last few years.  We should also be mindful that by all projections approximately 70-75% of overall volumes on the equity exchanges is driven by high frequency traders. Yes, that form of trading which presents itself as adding liquidity but Sense on Cents believes is more glorified front running than anything else.

Where was that liquidity on May 6, 2010 the day of the infamous Flash Crash on Wall Street when the market nose-dived approximately 1000 points in a matter of minutes?

So what is behind the enormous drop in volumes son the NYSE and other exchanges? We could banter about increased regulations on the industry and overarching government intervention in our markets and economy. There is clearly some validity to these points. I believe they pale in comparison to what I believe is the greater reason though. What is that?

A lack of trust.

Do you believe your principal is protected when you witness situations such as MF Global? Are you in a hurry to venture into the water when you see a Flash Crash with little real response from the regulators to mediate effectively?

The volume numbers do not lie.

When capital is not protected those in charge of managing that capital will choose not to play.

As hard as the crowd on Wall Street and in Washington may care to spin the numbers, the numbers on the floor of the Euronext NYSE speak VOLUMES, even when those volumes are plummeting.

What do you think? Are you trading or not trading? Can you tell us why your trading is increasing or decreasing?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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