You’ve asked about the Issuer Data Initiative – this effort with you to roll back the dark cloud of mystery that has fallen upon the data about your equity trading: We’re getting big helping hands. I’m in NYC this week for that reason. Hope to tell you about it next week! Make sure your company is backing the initiative.
Meanwhile, the merger battle lines pulse and writhe around Nasdaq OMX and NYSE Euronext. The drama raises a question: Which market has the highest share volume in 2011, up 10% over 2010?
If you shouted, “The Pink Sheets!” you’re correct.
We owe the tip to Tom Steinert-Threlkeld writing in the April 14 Securities Technology Monitor. Threlkeld quoted a report from SIFMA, the securities industry association. We looked it up. Fascinating stuff. Before we go Pink, some facts about the big guys:
The Nasdaq’s daily volume first surpassed the NYSE’s in 1994, with 295 million shares to the NYSE’s 291 million. The DJIA was at 834, the S&P 500 at 466 and the Nasdaq Composite at 751.
The Nasdaq retained its daily volume lead for 14 years until 2008, when the NYSE briefly recaptured the crown, with 2.6 billion daily shares to the Nasdaq’s 2.3 billion. The Dow was at 8776, S&P 500 at 903, Nasdaq Composite at 1577.
BATS joined the fray in 2007 with 300 million shares daily. It reached a billion daily shares in 2009. Spun out from Knight Capital in 2007, Direct Edge had 400 million shares daily in 2008 and grew it to 1.1 billion shares by 2009.
In 2010, the NYSE averaged 1.8 billion shares daily. In 2011 through March, the average is down to 1.6 billion. At the Nasdaq, the 2010 average was 2.2 billion shares, which has slipped in 2011 to 2.1 billion. BATS and Direct Edge have retreated some too.
The market rocking like AC/DC isn’t even an exchange. It’s the Pink Sheets, the bazaar for “penny stocks” run by the private company OTC Markets Group, Inc. SIFMA benchmarks the Pink Sheets from 2001, when daily volume averaged 291 million shares.
In 2011, daily trading volume is…wait for it…7 billion shares. That’s up about 10% over last year, an astounding 2,300% from a decade ago, and over 50% of total share volume. The dollar volume is $1 billion daily, only a fraction of the exchanges’ but growing yearly.
What’s happening over there, the Wild West? Maybe in part. It’s not an exchange, so most of the regulation stultifying exchanges and driving them into each other’s arms don’t exist. There’s a big Caveat Emptor carved into the invisible substrate of trading activity.
But it’s vibrant and growing. Over 10,000 securities trade. Among the names are Roche, Volkswagen, and BASF, the world’s largest chemical company with market cap of $83 billion and a stock price of $89. Average trade size on the Pink Sheets is about 63,000 shares compared to about 200 shares on the big markets. There’s no NBBO. The market isn’t organized around a “maker/taker” model. Brokers make bids and back them up.
What’s the point here, IR folks and execs? It’s a reality check. We don’t have to resign ourselves to marching backward, in retreat. The Pink Sheets prove it. I’m reminded of the great line from the movie The Shawshank Redemption (a Stephen King short story): “Get busy living, or get busy dying.”
The Pink Sheets aren’t dying. They might be onto something.
