For those who follow our periodic updates on intraday stock volume, today's article by the Wall Street Journal which focuses on the dramatic decline in activity during regular working hours will come as no surprise. In a piece looking at prop trading shop Briargate (oh so witty anagram of arbitrage), founded by several former NYSE specialists, we learn that at least one firm (and likely many more) now no longer does any trading during the hours of 11 to 2. As this creates a feedback loop of inactivity, pretty soon the core of daily stock market activity will merely be the half an hour of action at the open, and the dark pool-ETF-open exchange rebalance at the very close, with everything inbetween deemed obsolete. Of course, what this will do, is create even more volatility in trading, force an even greater decline in stock trading volumes (and pain for Wall Street firms), and a further divergence between stocks and fundamentals, as momentum trading gains an even more prominent role in determine "price discovery."
From the WSJ:
On the day the "flash crash" bludgeoned the stock market and chaos swept over the floor of the New York Stock Exchange, the founders of Briargate Trading were at the movies.Rick Oscher and Steven Rubinstein weren't playing hooky. Briargate, a proprietary-trading firm that the two former NYSE floor "specialist" traders started in 2008, is mostly active at the stock market's open and close.In between, when market activity typically drops, the Wall Street veterans play tennis in Central Park, take leisurely lunches, visit their children's schools and work out at the gym. Dress shoes have been replaced with flip-flops, slacks with cargo shorts. Once during market hours, they walked about five miles and crossed the Brooklyn Bridge to try Grimaldi's pizza."We actually planned on working a full day," says Mr. Oscher, wearing a white polo shirt and blue-plaid shorts. "But from 11 to 2, the markets are pretty quiet—what's the point? As a specialist, you have to stand in your spot all day and we did that for 20 years."Briargate—an anagram of "arbitrage"—isn't the only firm taking an extended recess during the 6½-hour U.S. trading day. Trading has become increasingly concentrated in the first and last hours of the session.Those two hours now make up more than half of the entire day's trading volume, according to an analysis of data provided by Thomson Reuters. In August, the first and last hour generated nearly 58% of New York Stock Exchange primary volume, up from 45% in August 2005, the analysis shows. The rise of high-frequency trading, where algorithms are used to exploit small discrepancies in high-volume situations, amplifies the concentration of trading at the beginning and end of the day, analysts say.Heavy trading in the first hour is largely due to the accumulation of orders placed by individual investors and their brokers after the previous day's close, mutual-fund activity and new strategies deployed by institutional investors based on the latest research and overseas trading, says Adam Sussman, director of research at Tabb Group, a financial-markets research firm. Meanwhile, funds that track stock indexes often wait until the final hour to execute trades to better reflect the benchmark measures' last prices.Focusing trading on those times could limit gains, but Messrs. Oscher and Rubinstein are at peace with that. "Would you rather play tennis or make an extra $80? It's a lifestyle question," says Mr. Rubinstein, who sometimes works remotely from Florida. "I can go play 18 holes of golf and then come back and trade and that's a workday."
As for how this strategy of avoiding "noise" trading is working out, the answer is - apparently not too bad. Which can only mean that many more lazy copycats will soon emerge.
While the firm declined to disclose their returns, Messrs. Rubinstein and Oscher say they make more than they did in their later, leaner years as specialists, though not as much as they did in the late 1990s before the industry started to consolidate.
Oh and remember that selective "HFT Off" switch pulled during the flash crash? The same that many HFTs said is what helped them avoid massive losses (and which makes all their statements of providing liquidity moot)? It shows up again, this time helping Briargate avoid losses. We are confident all retail investors and readers will be able to stop trading at precisely the right moment as well (in addition to selling all their holdings at the very top of the bear market rally).
Mr. Oscher said the firm, which trades only its own money, hedges its risks "so there isn't any scenario that would move our profit and loss beyond boundaries of comfort." Briargate says it didn't sustain losses during the May 6 flash crash because it closes its books when the market tends to be volatile. "We actually had a pretty good day," Mr. Oscher says.
Indeed, with everyone not only not trading between 11 and 2, but completely shutting down when vol passes a threshold, someone please remind us what the Chicago School of Fraud case for an efficient stock market was again?
LOL look @ SPY vol
might be the lowest vol of the year
someone better kick a robot
so this will be my last friday playlist for y'all. it is a best-of not just of my previous playlists but some of marla's favorite tracks as well :)
freshy fresh (a playlist): http://www.youtube.com/view_play_list?p=B64086D4A6EDA49C
teleprompter market - set the level for yet another BS speech;
like a bad replay of sat nite live skit
The melt-up will continue until there is a spark, and no one knows where or when that will happen. Period.
the spark has been replaced with an electric glow lite;
lies for everyone coming up
Perhaps glow plug. Useful igniting stubborn fuel...
I'm thinking thermite. Anyone know if it can ignite a giant pile of shit?
Thanks for the laugh, nice one :)
Don't tase me bro!
pretty big spark in that SanFran 'burb right now..
Grimaldi's pizza
yes
I read this article yesterday and the first thing that struck me about it is how it seemed to be one gigantic attempt to rationalize a market that many simply no longer want any part of.
While the article is a "cute" lifestyle piece, it can hardly be considered a valid justification or explanation for the dearth of volume in this ponzi market.
just my .02
While the article is a "cute" lifestyle piece, it can hardly be considered a valid justification or explanation for the dearth of volume in this ponzi market.
You can bet it will piss off the working stiff, putting in double shifts to pay the mortgage on his home that has negative equity. What a f-ing joke... seems like lazy zebras loafing at the watering hole. Where is the lion?
The lion is on his daily 8 hour copulation orgy with 3 female pride members as has been his want for the past 6 months. It's been a very good year.
There's only so many times you can watch every trade go against you for at least 45 minutes from the second you put it on.
I'm glad to hear this happens to you also. I thought I was the only one.
Oh thank God, I'm not alone.
next time you do a buy, quickly do a short at twice the position... just to see what happens
For me it's back to the future: even back in the first days of day trading, only suckers traded the dead zone (12-2).
Here is how "price discovery" works, now, in the health insurance business. The HHS Nazis call the health insurance company and asks what the new rates are. Regardless of the answer, the HHS then says the rates are too high, and the insurance company then "discovers" what their new rates are to be, or else.
Health and Human Services Secretary Kathleen Sebelius on Thursday said insurers who blame their rate increases on the new health overhaul could be excluded from health insurance exchanges and the 30 million new customers they promise, The Associated Press reports. "'There will be zero tolerance for this type of misinformation and unjustified rate increases,'… Sebelius said in a letter to the insurance lobby. 'Simply stated, we will not stand idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections,' Sebelius said. She warned that bad actors may be excluded from new health insurance markets that will open in 2014 under the law." Sebelius sent the letter to insurer trade group America's Health Insurance Plans. "The industry's top lobbyist responded that the health care law is a factor behind higher rates, but not the only one" (Alonso-Zaldivar, 9/9).
I dislike health insurers as much as most people, but the enemy of my enemy is my friend.
http://www.kaiserhealthnews.org/Daily-Reports/2010/September/10/Sebelius-Warning-To-Insurers.aspx
Trust the government or trust an insurance company.
No thanks.
Either way the trust gets violated and your finances pillaged.
What she is saying, in other words is, "lie like Obama about the cause-effect equation and then you can raise your rates".
"'There will be zero tolerance for this type of misinformation and unjustified... increases."
Unless of course it is the stock market or BLS numbers we are talking about.
I am my own worst enemy and the enemy of my enemy is my friend. Does this mean that all my friends are my enemies and all my enemies friends?
I was never this circular until the new normal was announced.
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