the increased frequency of herding days inwards the stock market. Also for review is the postal service that highlights the NYSE TICK equally a mensurate of institutional sentiment. The Zero Hedge spider web log noted the shift inwards the NYSE TICK slow yesterday as well as attributed the before buying forcefulness to algorithmic trading, specifically the plan trading associated with the NYSE's Supplemental Liquidity Provider plan (SLP), much of which can live on attributed to Goldman Sachs. More on SLP tin give the sack live on constitute here.
I holler upwards Zero Hedge is on to something, only I suspect there's to a greater extent than to the storey than the directionality of TICK values. If the distribution of TICK values is elevated over time, it agency that programs are existence executed with an upward directional bias. SLP is supposedly a non-directional marketplace making program; if it were genuinely run inwards that manner, it should non persistently lift or depress TICK, since the marketplace making would live on a two-sided trade.
However, if marketplace making programs were unusually influential inwards the marketplace, nosotros should await to run into a higher measure divergence of TICK values. That is, to a greater extent than baskets executed should yield a wider variability inwards one-minute ranges of TICK readings. Those tracking TICK should run into a large release of elevated TICK readings amongst a large release of depressed readings, equally the liquidity provider(s) operate on both sides of the marketplace executing their handbasket trades.
Recently, this increased variability of TICK readings (along with elevated book inwards the ES contract) is exactly what we've been seeing during slow hateful solar daytime trade. The higher upwards nautical chart provides an example from yesterday's trade, with a moving 20-minute measure divergence of one-minute high-low-close NYSE TICK readings. Notice how nosotros larn to a greater extent than programs executed equally the session moves toward the New York close. Unlike the readings from before inwards the day, which were skewed positively, the slow hateful solar daytime readings featured many extreme one-minute readings on the purchase as well as sell side--precisely what you'd await if marketplace makers were active inwards plan trading.
A quick disclaimer: I am a psychologist who plant with hedge fund portfolio managers, banking concern traders on proprietary desks, as well as proprietary trading firms; I brand no claim to expertise when it comes to the microstructure of the market. Nor practise I receive the macro perspectives of my company fighting colleague from Zero Hedge. What I tin give the sack order you, equally ane who trades as well as plant with active intraday traders (including several that concern human relationship for a meaningful per centum of sum book inwards the CME S&P 500 (ES) e-mini contract), is that the slow hateful solar daytime merchandise has changed lately as well as those changes accept guide affected active marketplace participants. Those changes include increased herding demeanour (a historically odd release of days skewed toward buying or selling) as well as increased marketplace book as well as volatility during the concluding hr of trading.
My sense, from the information higher upwards as well as my observations of the market, is that plan trading has been affecting this market, only the impact appears to live on peculiarly concentrated slow inwards the trading day. If SLP were providing supplemental liquidity throughout the day, ane would await a full general tiptop of the TICK measure divergence compared with, say, a twelvemonth ago. My analysis of historical information suggests that that has non occurred. Rather, it appears that liquidity providers are exploiting anomalies that happen toward the cease of the day. I suspect these anomalies are related to 3 factors:
* Increased participation of proprietary (directional) traders who typically encompass their positions past times the marketplace close;
* Increased intraday administration of positions as well as portfolios past times portfolio managers hesitant to concord overnight risk, given the diminished gamble appetites of investors;
* Portfolio rebalancing amid increasingly pop leveraged index ETFs, which may amplify existing directional moves.
Given the concentration of this plan action inwards the concluding hour, a skeptic powerfulness live on led to conclude that this trading is to a greater extent than designed to assist the liquidity of participating trading firms than the liquidity of the marketplace. There is zip incorrect with this--unless the action is funded inwards business office or whole past times a stock central working inwards conjunction with fiscal institutions backstopped past times the government, creating a less than grade playing plain for independent traders as well as investors.
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