Thinking

  • -How has the Hong Kong close auction session affected market volume profiles and end-of-day volatility?

    -Has Korea’s market hours extension resulted in more trading?

    -What has been the industry response to Hong Kong’s listing consultation and India’s algo trading review?

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  • With an election looming south of the 49th parallel and unprecedented numbers of Americans searching Canadian real estate online, we suspect that interest in Canadian market structure is approaching all-time highs. What observers will find is that the evolving Canadian market is becoming increasingly complex.

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  • With the rise of global unbundling, traders’ best-execution workload will increase dramatically, as they must develop a best-ex commission allocation scheme for all counterparties. Given so many brokers and so much noise inherent to trading, this is not just a practical concern, but an econometric one. This isn’t a new problem, but one that will become more common. Some of ITG’s clients, notably quantitative firms, are already trading exclusively for best-ex, with a history of performing TCA and judging algorithmic trading experiments. This document attempts to document some of the practices we have observed and offers some insights into how they can be used by traders at non-quantitative funds.

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  • Incorporating the benefits of portfolio optimization doesn’t have to disturb the core beliefs of the fundamental manager. The problem is how to characterize the solution in a way that captures the variety of portfolio strategies in the market. The simplicity of doughnut portfolio construction solves the problem.

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  • ITG’s size-adjusted spread (SaS) cost estimates provide guidance on the anticipated costs associated with instantaneous spot trade executions, measured relative to the prevailing mid-quote rate at the trade time. The underlying data for our model contains dealer quotes from 6 global banks and 5 major ECNs. By varying the manner in which we consolidate the limit order book across trading venues / liquidity providers, we are able to reflect different trading styles and credit tiers as well as varying degrees of sophistication of market participants. The use of the empirical limit order book enables us to construct cost estimates for instantaneous trading at various consolidation levels, deal sizes, as well as at various times of the day.

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  • Over the past 30 years, we have seen regulation repeatedly lower equity spreads, culminating in 2001 with decimalization. For the first time, we are moving in the other direction. How will the pilot program affect trading? Will it become easier to trade small-cap stocks? Phil Pearson explores this in his new paper, “Tick Pilot 2016: Make Small Caps Great Again.”

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  • MiFID II implementation may significantly affect investors’ ability to source dark liquidity effectively. Broker crossing networks will disappear, and certain types of dark trading will be mostly restricted to midpoint.

    If triggered, the introduction of double volume caps will limit certain dark trading volumes per stock to 4% in a single dark pool and 8% across all dark pools. The double volume caps are likely to result in six-month dark trading suspensions for many stocks, increasing market complexity around trading suspended stocks and tracking the status of each stock.

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  • How could IEX’s new exchange status affect your trading?

    In this article, ITG’s Phil Pearson discusses:

    -How ITG accesses IEX and what will change given its new exchange status
    -How the IEX launch will affect market quality
    -What other research on IEX we have planned

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  • The new closing auction session (CAS) on the Hong Kong exchange is showing encouraging signs of increasing stability on the exchange. The launch on July 25, 2016 went without major issues, and data in the first three weeks suggest that the mechanism is doing its job and averting the dreaded “close volatility.”

    CAS volumes have stabilized at around 5% of daily volume, with a rebalance peak of 13% of daily volume. More than 70% of stocks closed within ±20 bps of the reference price and 98% of stocks closed within 1%.

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  • In recent months the Canadian equity market has undergone significant evolution aimed at keeping trading flows within Canada’s borders. The changes appear to have succeeded in increasing Canadian trading volumes, but the impact on the market is at best unclear.

    We have witnessed an increase in Canada’s share of trading in dual-listed securities, alongside a decrease in the MOC auctions’ contribution to total volume. These classic indicators of growing intermediation have been accompanied by a marked increase in Canadian institutional trading costs, both in real terms and versus the U.S. market.

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