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November 11, 2008

What's Next for Volume?

By James Ramage

Traders during the recent downturn have seen equity trading levels hit unprecedented volumes. But how will the correction affect future volume? That was discussed at this year's Security Traders Association's annual conference last month. Case in point: After the 2001 correction, volumes took a powder for the next two years.

Potential reasons for a volume slowdown in coming months include: less hedge fund activity, as they deleverage; long-only institutions and retail sitting out after being burned; and investment banks prop desks being less active.

Still, not everyone is convinced a trading slowdown is coming. One argument for continued strong volume is that investors in derivatives might seek safety in equities. As one longtime sellside trader summed up his concerns: "Trading volume went up so much from normal, my fear is that volume could just as easily go down that much from the norm."

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