While a snowy February put a damper on employment numbers, ITG’s Chief Economist, Bob Barbera, sees a thaw lying just below the surface. He notes that household employment is up year-to-date, temporary jobs are growing and labor force participation is on the rise.

ITG’s survey of global transaction costs finds that trading costs fell around the globe in 2009, with the biggest declines in developed regions: 54% in Europe, 50% in North America and 46% in Asia. In emerging markets, transaction costs fell 70% during the year in Latin America, 46% in Eastern Europe and 5% in Emerging Asia. The analysis also breaks down trading costs based on individual countries and industry sectors.

Our research, part of ITG’s Post-Trade Analytics offering, is based on our Peer Universe, a robust database of transactions covering approximately 20% of all global equity trading activity.

Click here to read the full report

ITG’s London-based portfolio trading desk offers a monthly overview of trading trends across Europe, including breakdowns by sector and most actively traded names at ITG during the month of February.

The Tokyo Stock Exchange’s two month old electronic trading system, Arrowhead, has dramatically improved transaction costs for institutional investors. ITG’s analysis of our transaction data set – which covers approximately 20% of all Japanese market turnover – shows a 36% drop in average trading costs between December 2009 and January 2010. Large cap stocks in particular saw price improvement, while bid/ask spreads narrowed across the board.

The US economy has now seen two full years of inventory destocking, the longest stretch in postwar history. ITG’s Chief Economist, Bob Barbera, expects a restocking, along with rising inventories and improving demand, to support his forecast of 3.8% annualized GDP growth this year. That is, if it ever stops snowing.

The attached spreadsheet from ITG Portfolio Trading breaks down the reports for each sector in the S&P 400, 500 and 600 indices. Updated 2/26/2010

The attached spreadsheet from ITG Portfolio Trading highlights our updated trading estimates (as of Thursday, February 25) for the Russell Monthly Rebalance effective at the close of trade on Friday, February 26, 2010.

Dear Client:

This week ITG sent a comment letter to the Securities and Exchange Commission (“SEC”) regarding the Commission’s proposed changes on regulations for non-public trading interest, including dark pools.

While ITG is broadly supportive of the SEC’s moves to increase transparency and to promote fair access on behalf of investors, we believe some refinements to the proposals would benefit both institutional and retail investors and would improve the quality of US equity market structure. A summary of our recommendations is below.

Current Proposals

The Commission is proposing three major amendments to current dark pool regulations. The first amendment would modify the definition of bid or offer to include actionable indications of interest (“IOIs”). Under the proposed rules, such actionable IOIs would be considered quotes under Regulation NMS and thus be subject to the public display requirements in that regulation.

The second proposed amendment would lower the trading volume threshold in Regulation ATS that triggers the public display requirement for orders (including actionable IOIs) shown to more than one person by an ATS. The current threshold of 5% of average daily volume (“ADV”) of a particular stock would be reduced to 0.25% of ADV. An exemption to this rule would exist for block orders with a market value of at least $200,000 that are displayed only to those who are reasonably believed to represent current contra-side trading interest of at least $200,000.

The third proposed amendment would require real-time disclosure of the identity of an ATS (including a dark pool) on the reports of its executed trades, unless the trade is a block trade with a market value of at least $200,000.

ITG’s Recommendations

Actionable IOIs. While we believe that actionable IOIs should be brought into the public quote stream, the Commission should provide a definition or a clear set of guidelines for what constitutes actionable IOIs. On a related note, we strongly support the proposed block order exemption from the public display requirements.

Block Size Definition. While the SEC’s proposals recognize the value of block liquidity, the one-size-fits-all approach of the $200,000 or more definition is not the optimal solution. We would suggest that a block order be defined as the lesser of $200,000 or 1% of the dollar value of ADV of that stock over the prior quarter. We also recommend that the SEC clarify that the definition of contra-side interest of $200,000 refers to the aggregate amount of contra-side interest, not merely a single order of $200,000.

Public Display. ITG believes the Commission should clarify that the ATS public display requirement does not apply to orders residing in a broker-dealer’s ATS that choose to interact with that broker-dealer’s own internal systems, such as smart order routers and/or trading algorithms. However, we would urge the SEC to examine private links between two or more broker-dealers that allow mutual searches for liquidity, as we believe such links could be used as a method for circumventing compliance with the spirit of the proposed rules.

Post-Trade Transparency. ITG supports disclosing the identity of the ATS on the reports of its executed trades. However, we believe that such disclosure should be done on a delayed basis, such as the end of the trading day. Furthermore, we strongly assert that this disclosure should be furnished on a disaggregated basis – i.e. trade by trade – and with no exemption for block executions, in order to provide the marketplace with the maximum amount of information. ITG would also recommend that this post-trade reporting requirement be extended to all participants who effect executions, not just ATSs.

We believe the SEC’s proposals are made with the best interests of institutional investors in mind. The regulatory changes will establish a clear distinction between truly dark pools and lit pools while recognizing the value of quality block liquidity, and we welcome this clarity. As a truly dark pool, POSIT will continue to provide quality executions and price improvements as it has done over the past 23 years, and ITG looks forward to partnering with our customers to improve investment performance for many years to come.

Sincerely,

Bob Gasser
President & CEO
Investment Technology Group

Click here to read the full letter

Last week’s move by the Fed to nudge the discount rate higher is a taste of more to come this year, says ITG’s Chief Economist, Bob Barbera. He thinks a solid quarter of employment growth – such as the 260,000 average monthly new jobs Bob is forecasting to add in the second quarter – will set the stage for a reversal of today’s super-easy monetary policy. Also this week: why a snow cone shouldn’t be mistaken for a double dip.

The attached spreadsheet from ITG Portfolio Trading breaks down the reports for each sector in the S&P 400, 500 and 600 indices. Updated 2/19/2010