In response to our initial analysis of the trends in market behaviour following the Wirecard scandal, one reader astutely noted the trends in notional volumes. In short, the number of shares traded increased as the price per share tanked; the two effects offset each other such that the total notional value traded eventually decreased in aggregate. Again, we can dig deeper into the market microstructure to gain deeper insight into the specifics of this case and gain an additional perspective on the regime change in trading behaviour around Wirecard.

Notional Values Traded

Considering total notional value traded, we again observe a significant spike on the 18th of June; the total value traded of Wirecard increased 5x over the previous day’s trading to reach over €2.4bn. It is also interesting to note that this spike is not as transient as one might expect, taking several days to return to pre-announcement levels despite the price falling almost 90% over this period.

Chart 1 displays the overall notional value traded in EUR by liquidity bucket. The large blue band represents on exchange liquidity. The grey and green buckets represent off-book liquidity, SI and technical activity.

Another perspective on this is to compare those volumes as a percentage of the average daily notional volumes in a more typical time period. Here we compare to the average daily notional volume in May 2020 as an estimate of calmer market volumes. Given the current market volatility there is no perfect measure of “typical” trading volumes; longer lookbacks understate the impact of coronavirus on increased trading volumes and shorter lookbacks may not capture some expected seasonality but this selection seems a reasonable tradeoff. The 100% level denotes a typical day’s trading volume. We again see that after the initial spike, it took several days to return to normalcy, and this was consistent across all trade categories.

Chart 2 shows the daily notional value traded as a percentage of the average daily volume (notional ADV) in May 2020.

Delving Back into the Order Book

Revisiting two of the charts in our initial analysis, we plot the average order sizes of both executed orders and posted orders, this time in terms of the notional value traded in euros. Taking first the executed orders, we see that the day of the 18th of June saw a slight uptick on the bid side despite the momentous price drop over the course of the trading day. Following this, the average order sizes slowly decline over the remainder of June.

Chart 3 displays the notional value executed per order, separately for bid and ask orders, over the month of June.

Looking at posted orders, we see markedly different behaviour. As in our initial analysis we see a sharp dichotomy between the two sides, but interestingly the sides are reversed. The increase in average notional size per order was larger for asks than bids, whereas the opposite was true of the average number of shares per order; we may be seeing some hopeful limit orders looking to cash out at a high price in the event of a recovery, perhaps with some Good Til Cancelled orders placed before the downturn remaining on the book. Also of note is that the significant increase we observe on the ask side is again more prolonged than perhaps expected.

Chart 4 displays the average notional value posted per order, separately for bid and ask orders, over the month of June

A Change in Trading Regime

In our original piece we pointed out sustained changes in aggregate trading behaviour that outlasted the initial price shock, leading to a more aggressive trading regime. The aggressive trade imbalance was one such metric to gauge this; we note that this measure is the total aggressive volume normalised by the total trading volume in the period, so is insensitive to plummeting prices.

We conclude with another such metric that illustrates the change in trading regime while being resilient to the effects of share price. The quote to trade ratio is a measure of the passiveness of the market environment. A high value indicates many quotes are posted with relatively few resulting in a trade, whereas a low value indicates a more aggressive environment in which a quoted order is more likely to be matched. Two methodologies are shown: one in terms of all order book messages and one in terms of volumes posted at the consolidated best bid/offer. Both measures tell a similar story, in which the market became more progressively more aggressive in the days leading up to the announcement on the 18th of June, and remained at this level for the remainder of the month.