Thought Leadership
We shape market thinking. Our experts monitor the latest industry developments, engage current debates, and offer ongoing analysis so we’re prepared to offer up-to-the-minute guidance. Based on our well regarded understanding of worldwide financial markets, we are able to take an active role in the conversations that inform market regulations and are positioned to advocate for our clients’ interests.
The average volatility widened for constituents of all indices while spread decreased. Relative to the first 5-month period of 2012, volume decreased for the S&P500, Russell 2000 and MSCI Emerging Markets indices but increased for the MSCI World Index in 2013.
Introduction
For a portfolio trader, achieving best execution requires balancing execution risk and transaction cost across a basket of securities. Naturally, reducing risk and minimizing cost have opposing effects on execution. Simply put, trading aggressively incurs higher cost but lower risk, while trading patiently yields lower cost but higher risk. Furthermore, traders often have secondary considerations such as maintaining cash- or beta-neutrality, which makes this trade-off even more challenging.
It is important to have accurate intraday volume distributions for efficient order execution. In this report we review the new intraday volume profiles created by ITG Financial Engineering for Canadian securities, including cross-listed stocks, ETFs and several other types of exchange traded instruments. Notably, the ETFs tend to have distinct profiles from equities, mirroring the unique features of their underlying baskets. The new intraday volume profiles combine intelligent grouping and smart noise reduction techniques to obtain stable stock-specific profiles for all securities. ITG Logic and ITG Algorithms for Canadian securities will have this intraday volume profile information in near future.
The Irish are a few weeks away from completing their tenure of the Presidency of the European Union Council (the Council) and Lithuania is scheduled to take on the Presidency’s rein on 1st July. If we are to judge the work that the Irish Presidency has undertaken on the MiFID review, some press reports seem to suggest that agreement in the three key areas that have been stalling progress on the dossier are nearing completion.
Recently, a variety of global pundits have seen fit to weigh in on the impact that new dark pool and dark liquidity rules have had on the Canadian equity markets. While the comments are varied in tone and commentary, they have all had one common theme: a lack of solid data on which to base their conclusions. As the leader in data driven market structure analysis, we have taken up the cause and offer up the following analysis of the dark rules and their impact on the Canadian market place.
The developed and emergings markets both saw another month of net trade outflow from the resources sectors, $1.6 billion and $508 million, respectively. Regional developed and emerging MSCI indices saw trade inflow except MSCI North America (-$945mn), MSCI Emerging Latin America (-$137mn) and MSCI Emerging Europe (-$70mn).
VIX fluctuated widely in April while the Dow and S&P500 again reached all-time high. Spread increased for constituents of the S&P500, Russell 2000, MSCI World and MSCI Emerging Market indices.
In this edition of The Blotter, Chad Dale, Director, Index & ETF Research, provides a review of the 2013 Russell Reconstitution.
The past several years exhibited dramatically different results—2009 was a textbook index rebalance without the involvement of the speculative community (which was risk averse coming out of the credit crisis), 2010 was influenced by a series of rule changes implemented by Russell while the rebalances in 2011 and 2012 were more “normal” events in both composition and performance. With little in the way of additional rule/methodology changes, and no significant changes in the global macro-economic environment (or corresponding risk appetites) since the 2012 reconstitution, we expect this year’s trade to remain “normal” in much the same way that the prior 2 reconstitutions were.
Volume declines abated in the fourth quarter, with overall activity in the Canadian equity markets increasing slightly while trading costs decreased. Block activity also increased in Canada, we believe this to be a result of increase swap/derivative trading activity and not indicative of changes in natural buy-side liquidity available.
We noted a mass exodus from the resources and basic material sectors. There was
a net trade outflow of $3.8 billion and $917 million in the respective sectors in the
developed markets. MSCI World and MSCI North America saw another month of net trade outflow. MSCI Emerging Far East saw net trade outflow of -$1billion. Trade costs increased in the emerging markets from February 2012
