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  2. INTERACTIVE
March 07, 2016 12:00 AM

Tradewatch: Volatility spikes to highest level since 2011

Gregg A. Runburg
Rick Baert
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    The U.S. equity market was roiled at the start and end of 2015, closing the year with the highest volatility since 2011, based on data from Investment Technology Group Inc.

    Average volatility for the Standard & Poor's 500 stock index was 25% in 2015, five percentage points above the 2014 average, said Sandor Ferencz, vice president-analytics at ITG in Culver City, Calif. Volatility was high in the first quarter at 25% and dropped off to 21% in the second quarter before rising to 24% in the third quarter and then surging to a preliminary 30% in the last three months of the year. ITG measures annualized volatility as the 60-day historical volatility for the S&P 500.

    Continuing declines in oil prices partially drove volatility throughout the year, but China's economic crisis in the second half of 2015 sent volatility soaring, Mr. Ferencz said. The plunge in oil prices sparked a rise in the fourth quarter of 2014, when S&P 500 volatility was at 22%, and apart from that dip in the second quarter of 2015, volatility continued to rise.

    “We haven't seen volatility hit the 30% mark since the third quarter 2011, when it was 33%,” Mr. Ferencz said. At that time, the U.S. fiscal-cliff debt crisis and concern over Greece and the European Union drove volatility. “Volatility has ranged in the 20s since then, until this year,” he added.

    Colleen Ruane, director-analytics at ITG in New York, added the spread on the S&P 500 last year also rose to 5.14 basis points in the fourth quarter from 4.6 basis points in the first quarter, particularly after the Aug. 24 flash crash. “Generally, the big thing was that Aug. 24 saw significant volatility spikes and rising spreads, and spreads have remained at an elevated state since then,” Ms. Ruane said.

    U.S. trading costs averaged 37.6 basis points in 2015, hovering around 35 basis points to 36 basis points for the first three months of the year before jumping to 44 basis points in the last quarter, based on preliminary data. “The average cost increased somewhat,” but the overall range of trading costs increased significantly for the year, Ms. Ruane said.

    Added David Griffin, New York-based product director of transaction cost analysis at State Street Corp. subsidiary Elkins/McSherry, a trade execution consultant “Our overall (cost) averages haven't moved that much, but the distribution curve has widened among the costs we've measured this year. It's not an ongoing trend. If I had to make a guess, I'd say it's because of the volatility spikes we've seen this year.”

    BROKER RANKINGS
    Ranked by difference in cost/savings against the Elkins/McSherry Arrival Price universe, based on the top 50 brokers in each category by U.S. dollar volume. Rolling four-quarter data are as of Dec. 30, 2015. Source: Elkins/McSherry, a State Street company.
    All trading

    Global brokers
    RankBrokerDifference
    1

    ITG

    -43.46
    2

    Instinet

    -37.76
    3

    Bloomberg Tradebook

    -35.24
    4

    J.P. Morgan

    -30.44
    5

    Jefferies

    -29.88
    6

    RBC Capital Markets

    -19.12
    7

    Russell Impl. Svcs.

    -16.79
    8

    BofA - Merrill Lynch

    -14.50
    9

    Citigroup

    -6.13
    10

    Pavilion Global Markets

    -0.97

    U.S. brokers
    RankBrokerDifference
    1

    Agency Trading Group

    -54.57
    2

    Cantor Fitzgerald

    -49.18
    3

    State Street Global Mkts.

    -41.68
    4

    Weeden

    -40.39
    5

    Credit Suisse

    -36.03
    6

    BTIG

    -35.63
    7

    ITG

    -28.08
    8

    Knight Securities

    -27.40
    9

    Baycrest Partners

    -23.27
    10

    Fidelity

    -19.32
     
    Trades by order size

    Large orders: 50,000+ shares

     

    RankBrokerDifference
    1

    Fox River

    -69.96
    2

    Agency Trading Group

    -48.33
    3

    Bank of New York

    -40.44
    4

    Fidelity

    -38.71
    5

    BB&T Investment Svcs.

    -29.74
    6

    Goldman Sachs

    -26.73
    7

    Instinet

    -16.58
    8

    ITG

    -16.39
    9

    Gar Wood Securities

    -14.04
    10

    BofA - Merrill Lynch

    -11.42

    Medium orders: 10,000 - 50,000 shares
    RankBrokerDifference
    1

    BTIG

    -36.74
    2

    Agency Trading Group

    -33.07
    3

    BofA - Merrill Lynch

    -27.22
    4

    Goldman Sachs

    -26.25
    5

    UBS

    -25.82
    6

    ITG

    -23.51
    7

    Weeden

    -19.66
    8

    Credit Suisse

    -18.80
    9

    Gar Wood Securities

    -8.47
    10

    Bank of New York

    -7.50

    Small orders: 10,000 shares

    or less

    RankBrokerDifference
    1

    Guzman

    -26.42
    2

    Agency Trading Group

    -25.84
    3

    ITG

    -14.46
    4

    Knight Securities

    -12.03
    5

    UBS

    -11.73
    6

    J.P. Morgan

    -11.52
    7

    NGAM Advisors

    -10.32
    8

    Gar Wood Securities

    -7.82
    9

    BTIG

    -6.00
    10

    Wells Fargo Prime Svcs.

    -5.29
     
    Trades by liquidity

    0% - 20% of daily volume
    RankBrokerDifference
    1

    State Street Global Mkts.

    -53.09
    2

    Agency Trading Group

    -29.32
    3

    Fox River

    -29.15
    4

    BB&T Investment Svcs.

    -15.33
    5

    Guzman

    -11.73
    6

    Fidelity

    -9.90
    7

    J.P. Morgan

    -9.58
    8

    Lazard

    -9.40
    9

    ITG

    -8.42
    10

    Gar Wood Securities

    -7.22

    20% - 50% of daily volume
    RankBrokerDifference
    1

    Weeden

    -30.90
    2

    Credit Suisse

    -22.86
    3

    Goldman Sachs

    -19.02
    4

    BTIG

    -12.73
    5

    NGAM Advisors

    -12.03
    6

    Gar Wood Securities

    -10.78
    7

    BofA - Merrill Lynch

    -7.91
    8

    Bank of New York

    -7.45
    9

    BB&T Investment Svcs.

    -6.14
    10

    Morgan Stanley

    -3.04

    50%+ of daily volume
    RankBrokerDifference
    1

    Agency Trading Group

    -34.38
    2

    BTIG

    -22.76
    3

    Raymond James

    -21.59
    4

    NGAM Advisors

    -14.92
    5

    Gar Wood Securities

    -14.61
    6

    Goldman Sachs

    -13.36
    7

    J.P. Morgan

    -10.23
    8

    Credit Suisse

    -8.07
    9

    BofA - Merrill Lynch

    3.87
    10

    Morgan Stanley

    4.16
     
    Trades by market cap

    Giant cap
    RankBrokerDifference
    1

    Needham

    -20.79
    2

    Jones & Associates

    -20.59
    3

    ITG

    -19.94
    4

    Fox River

    -15.89
    5

    NGAM Advisors

    -8.47
    6

    Piper Jaffray

    -7.75
    7

    Bank of New York

    -7.08
    8

    Goldman Sachs

    -6.83
    9

    UBS

    -5.71
    10

    Agency Trading Group

    -5.54

    Large cap
    RankBrokerDifference
    1

    Guzman

    -30.89
    2

    Agency Trading Group

    -21.06
    3

    BTIG

    -19.88
    4

    BB&T Investment Svcs.

    -11.92
    5

    ITG

    -10.96
    6

    J.P. Morgan

    -7.13
    7

    Gar Wood Securities

    -6.99
    8

    Robert W. Baird

    -4.87
    9

    William Blair

    -3.99
    10

    Goldman Sachs

    -2.01

    Midcap
    RankBrokerDifference
    1

    Agency Trading Group

    -48.93
    2

    BTIG

    -23.83
    3

    J.P. Morgan

    -19.00
    4

    Fidelity

    -16.71
    5

    Gar Wood Securities

    -16.51
    6

    Piper Jaffray

    -11.85
    7

    BB&T Investment Svcs.

    -11.62
    8

    Credit Suisse

    -11.57
    9

    Weeden

    -11.09
    10

    NGAM Advisors

    -8.53
     

    Small cap
    RankBrokerDifference
    1

    Agency Trading Group

    -51.16
    2

    Credit Suisse

    -43.76
    3

    Knight Securities

    -32.45
    4

    NGAM Advisors

    -19.27
    5

    Gar Wood Securities

    -15.53
    6

    ITG

    -14.26
    7

    Goldman Sachs

    -13.44
    8

    BTIG

    -11.10
    9

    BB&T Investment Svcs.

    -5.81
    10

    Morgan Stanley

    0.74

    Microcap
    RankBrokerDifference
    1

    Agency Trading Group

    -117.81
    2

    BTIG

    -111.26
    3

    State Street Global Mkts.

    -101.32
    4

    Weeden

    -99.48
    5

    Credit Suisse

    -96.58
    6

    Morgan Stanley

    -69.77
    7

    Goldman Sachs

    -42.18
    8

    J.P. Morgan

    -37.04
    9

    Wells Fargo

    -24.58
    10

    Gar Wood Securities

    -20.07
     
    TRADING ANALYTICS

    Commissions and implementation shortfall based on ITG's peer group.* Volatility annualized is the 60-day historical volatility for the S&P 500 index. Data are as of Dec. 30, 2015. Source: Investment Technology Group.

    U.S. trading costs: Commissions and implementation shortfall

     
    Average spread and annualized volatility of S&P 500 constituents

    *4Q 2015 peer data are preliminary.

    Related Articles
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