Today, we’ll concentrate on what happened last week when the markets were shelled by broad-based institutional selling. Our sample data showed anonymous electronic order flow accounted for 42% of all trading Nov 5-9 and an astonishing 69% of volume on Nov 8.
What happened, why does it matter, and what’s to be learned, IROs?
Looking first at what happened, we believe institutions abandoned the orderliness of prime brokerage relationships where broker-dealers employ technology, access to liquidity and their own capital to control execution costs for clients and effect minimal impact on market structure. Instead, it appears that institutions connected directly to the markets in a nearly desperate effort to reduce exposure to equities. Whatever the reasons, the astounding role of anonymous execution platforms like Archipelago on Nov 8 was indisputable.
Why did it happen? Two reasons: First, we can’t overlook fear. Quantitative and fundamental investors alike are trading in four or five-day increments and making swift changes. Second, options set to expire this Friday, Nov 16 include currency and treasury futures as well as security futures. » Read more: Investor Relations, Optional Chaos And Institutional Selling
