The retail investor, John Q. Public, has made his presence felt in the equity market structure.
How can the little guy affect the equity market structure dominated by multi-billion dollar institutional investors and prestigious firms? Simple – use his pocketbook – and trade. And then trade some more. Market professionals at the speaking at the Piper Sandler Global Exchange & FinTech Conference said it was this retail trading deluge that helped push the market to its limits and tested its technology and procedures.
Joe Mecane, Head of Execution Services at market maker Citadel Securities, said that the new COVID-19 environment, where people are working from home or are at home with fewer things to do helped spur retail trading and coupled with institutional order flow, tested market resiliency.
“Everyone will say how well the markets have worked and there has been such a focus on stability and robustness,” Mecane began. “People are still surprised things worked so flawlessly. A big part of why the market held up is retail’s involvement and where our market making side of the business had a chance to perform.”
Enrico Cacciatore, Senior Quantitative Trader and Head of Market Structure at Voya Investment Management, confirmed Mecane’s assessment that the boost in trading activity was coming from Mom and Pop investors taking advantage of zero-commission fees charged by the major e-brokerages.
“Retail, from my vantage point, has been the driver in volume here,” Cacciatore said. “You could see the exponential growth on the TRF to prove this. During the crisis, institutions were positioning themselves using passive strategies and repositioning based on returns. Despite this, the activity levels were still more retail-oriented.”
But what about the future? Can retail keep the market moving?
Mecane thinks so. He said elevated retail volumes are “clearly contributing” to heightened volumes and are running upwards of 20 percent from their more usual low ten percent range.
“On a relative bass on an ETF or TRF activity basis, it looks like more traditional institutional activity is down compared to retail,” he said.
TD Ameritrade reported that in April the firm averaged 3.051 million client trades per day in the month, up five percent from March. It further reported that its Investor Movement Index in March was 4.16 in March during the height of the crisis. The index is TD Ameritrade’s proprietary, behavior-based index, aggregating Main Street investor positions and activity to measure what investors actually were doing and how they were positioned in the markets.
“TD Ameritrade clients were net buyers overall for the second month in a row in April,” the firm said in a statement. “They net bought equities, but as volatility among widely held names decreased during the period, they reduced their market exposure.”