October volumes draw BATS-NYSE battle lines

Market share trends in US equities in October signalled the soon-to-merge entity comprising BATS Global Markets and Direct Edge could challenge the New York Stock Exchange as top market operator.

Market share trends in US equities in October signalled the soon-to-merge entity comprising BATS Global Markets and Direct Edge could challenge the New York Stock Exchange as top market operator.

The four order books that will comprise the combined BATS Global Markets and Direct Edge equity order books reached 22.02% of market share in October with US$1.09 trillion in value traded, a mild gain of 1.75% from September’s 21.66%, according to Thomson Reuters Equity Market Share Reporter.

BATS’ gains coincided with market share for market leader NYSE Euronext’s two order books slipping 1.78% to 24.77% with US$1.2 trillion in value traded, compared to 25.22% market share experienced in September.

Nasdaq, meanwhile, edged its market share to 17.65% with US$878.7 billion traded in October from 16.41% in September.

These shifts in market share come as the US equity market continues to show strong gains, with the S&P 500 index marking year-to-date gains of 23.5% and broker ConvergEx has predicted this will extend to 28-30% by January.

Merger nears

October also witnessed a spike in notional value traded, which jumped 25% to US$4.9 trillion in October from US$4 trillion in September. The value traded, however, does not denote the average number of shares traded, which experienced a mild gain to 6.3 billion shares from 6.1 in September according to data from BATS Global Markets.

The merger of BATS and Direct Edge came one step closer as the US Department of Justice gave its clearance, paving the way for completion of the deal next year.

The combined BATS-Direct Edge entity will operate under the BATS Global Markets name, with current BATS CEO Joe Ratterman retaining his post and Direct Edge CEO William O’Brien assuming the role of president.

“October was a great month of global progress for the company as we seek to provide additional and improved offerings to enhance the trading experience for all investors,” Ratterman said. “We’re also particularly pleased to earn US Department of Justice clearance for the Direct Edge merger and look forward to closing the transaction in the first half of 2014, pending full regulatory approval.”

Speaking to theTRADEnews.com, Bryan Harkins, COO at Direct Edge, said the market operators’ performance reflected positive investor sentiment. He said the spike in notional value traded did not necessarily signify the buy-side’s confidence in US equities, but was encouraging.

“The strong surge in notional value is a good potential leading indicator for investor participation,” Harkins said.

“It’s still inconclusive, but we do this see this as a positive development.”

Equity flows up

But, Rich Repetto, principal, equity research for Sander O’Neil and Partners, said the value traded figures did not signify buoyancy in the equity market as the number of shares traded had remained largely level.

“The market’s up 23.5% year-to-date as signified by the S&P500 index and inflows into domestic equity mutual funds have improved this year,” he said. “But, the dollar value traded does not show an increase in activity from market participants because roughly the same amount of shares were traded in October compared with September.”

However, Yousef Abbasi, market strategist at Jones Trading, believes the spike in value traded is linked to similar increases in total shares traded – which he pegs at 17.8% higher in October compared with September, and an increase in total trade count of around 22%.

“Trade count and total shares traded both rose in October in addition to other factors that increased total notional value traded including the continuing moves of the equity market and a general rise in volumes. The effects of IPOs having their best month since 2007 also increased the value traded figure,” he said.

October also witnessed a steep rise in weekly equity fund flows, according to data compiled by US buy-side trade body the Investment Company Institute.

For week 43, ending Wednesday 23 October, equity fund experienced net inflows of US$13.5 billion, compared to US$2.9 billion the previous week. This was comprised of US$9.2 billion in domestic equity funds – up from US$832 the previous week, and flows into world equity funds of US$4.4 billion, up from US$2.1 billion the week prior.

In the past year, world equity funds have attracted the bulk of equity flows, with US$110.1 billion, compared with US$13.5 billion for domestic equity funds.