2023: Global Equity Trading Retrospective

By Dr. Elliot Banks, Chief Product Officer, BMLL

Looking back over the past year in equity trading, it’s easy to forget the scale of transformations that took place. Whether it was volatility due to bank runs (culminating in the forced sale of Credit Suisse to UBS), federal reserve interest rate changes, or continued rise of ETFs (especially for fixed income), understanding the equity trading landscape has continued to be critical to all market participants.

This blog examines some of the highlights from BMLL’s latest webinar, “The Global Equity Trading Landscape - 2023 In Review”, where our Chief Product Officer, Dr. Elliot Banks takes a closer look at the volume trends between the US and Europe using BMLL’s Level 3 data insights.

2023 volume trends between the US and Europe

Trading volumes in both the US and Europe showed less variance and were lower than the peak volumes seen during 2021/2. In the US, 2023 volumes were significantly higher than they were pre-Covid. However, that same result is not seen in Europe. Here, volumes have remained much closer to pre-Covid levels. Using BMLL’s Level 3 data, we are able to examine a number of specific trends in both regions:

1. EU volumes are shifting off exchange

The data shows a period of flattish growth in Europe, naturally leading to the question: Were there any market structural changes that were driving this? Looking at the data, we see that volumes of lit continuous trading have been in steady decline over the past couple of years, with a comparable rise in OTC volumes (both off-book on-exchange volumes and pure OTC trading volumes). Understanding these liquidity types, especially with regards to whether it is addressable, is key to understanding the price formation within European equities.

2. US is dominated by a few stocks

The term “Magnificent Seven'' has come to summarise the small group of top performing stocks in the US including Amazon, Apple, Google’s Alphabet, Meta Platforms, Microsoft, Nvidia and Tesla. The turn of phrase, which did not even exist a year ago, has become so popular it has now been shortened to “Mag Seven”.

The key story here is these mega caps are driving volumes in the US on a different scale from anything we have seen anywhere else globally in terms of listed securities. The trading volumes of the Magnificent Seven dominated the S&P 500 index, representing over 30% of total volumes traded. In September 2023, just those seven securities - out of the entire top 500 names in the US - were worth nearly $2 trillion. As a consequence, traders need to understand how these incredibly large volumes are impacting other securities. It should also be observed that passive money has now exceeded active assets under management in the US. The majority of passive investment is concentrated in index and capital market cap-weighted funds, heavily influenced by the Mag Seven's dominance in trading volumes. This dominance results in a self-fulfilling prophecy, as money is continually reinvested into these funds, driving further growth and trading volumes.

3. How liquidity behaves around certain events

Given the levels of assets now in passive investing, it is critical to understand how trading changes under certain “events”. As a classic example, we look at triple witching. Triple witching is the simultaneous expiration of stock options, stock index futures, and stock index options contracts, all on the same trading day. Triple witching events have a large effect, in terms of size and scale, on the closing auction of large liquid markets, such as the US, Japan and Australia. It's worth noting this is different in less developed markets, such as Shenzhen, where auction volumes still represent a very small proportion of total trade volumes. Understanding the close and how it impacts overall trading dynamics is critical, especially for developed markets and around particular events.

Harness the power of Level 3 data

It is through the use of Level 3 Data that users can have a much better insight to the underside of what is driving trends, and 2023 has been no exception. By harnessing the power of nano-second, message-by-message data, with unlimited cloud computing power and a full suite of analytics libraries, traders can harness the fullest picture of market quality, liquidity and order book dynamics. Ultimately, traders make better decisions by using Level 3 data, whether that be assessing impacts of off-book on-exchange trades, the Mag Seven and, even, triple witching.

To find out more about other topics covered by Dr. Elliot Banks, such as the impact of globalised competition for listings or the role of retail in addressable liquidity, watch our “The Global Equity Trading Landscape - 2023 In Review” webinar.