Institutional investors are funneling about half of their equity trading volume through program trades as they leverage technology to increase trading efficiency and save money.
Those institutions are using programs to trade lists of stocks more efficiently, to manage cash flows and portfolio manager changes and to handle portfolio rebalancings, according to program trading executives.
"Portfolio trading has really taken off," said John Feng, a consultant with Greenwich Associates, Greenwich, Conn. "Numbers are flying around in terms of how much volume is actually from programs, but they are large numbers, for sure."
On the New York Stock Exchange, which defines program trading as a basket of 15 stocks or more with an aggregate value of at least $1 million, program trading is running around 50% of total exchange volume every week, up from around 30% a year and a half ago, although some analysts claim the exchange's formula for calculating program trading double-counts such volume.
Recent Greenwich Associates research found that the most active U.S. institutional trading desks executed half of their equity trading volume through portfolio trades over the past year, up from 44% in 2003.
Institutional investors are taking advantage of declining commission rates, which fell to an average of 2.2 cents per share from 2.5 cents in 2003, with the most active institutions paying just 2 cents or less for portfolio trades, according to Greenwich. "There's significant savings if you can bundle trades," Mr. Feng said.