Active Traders Execute Throughout Day During Russell Rebalance

They Ignore Volume Spikes On the Close

This year’s reconstitution of the Russell indexes saw trading volumes for affected stocks nearly double, but the spike in trading came at the end of the day, with active traders not changing their behavior in anticipation, according to a new report by Credit Suisse.

The Russell indexes were updated on June 24, but volumes throughout that day remained very close to any other day until around 3:30 p.m., shortly before the market’s close. The surge of volume at the end of the day did not seem to impact trading earlier, the report found.

According to Credit Suisse, active traders do not appear to hold back orders in anticipation of the excess liquidity provided by the Russell rebalancing.

“You might think if you’re an active guy and you need a lot of liquidity, that you should wait till the index volumes come at the end of the day,” said Ana Avramovic, an analyst with Credit Suisse. “But you have to remember, offsetting that is that there’s also more volatility at the end of the day.”

For active traders, the one-time event of the Russell rebalancing might not be as great an opportunity as some might think.

“They’re realizing that it’s not a free lunch,” said Avramovic.

Credit Suisse estimates that the gross trade in stocks being rebalanced totaled around $71 billion on June 24.

A one-day surge in volume was not enough to burnish overall trading volumes for the first half of 2011. Average daily volumes are down 21 percent compared with the first half of last year, according to Credit Suisse.