It could have been worse.
Volume declined in 2013 by the smallest amount in the past four years.
For the 10 months through October, average daily volume clocked in at 6.2 billion shares. That was down from 6.5 billion shares, or 4.6 percent, the previous year.
By contrast, during the years 2012, 2011 and 2010, average daily volume declined by 16.7 percent, 8.2 percent and 13.3 percent, respectively.
Still, a decline is a decline.
Behind the sluggishness, according to analysts at Kissell Research Group, are higher, yet less volatile stock prices. The S&P 500 Index is up about 23 percent so far this year, while the CBOE Volatility Index, or VIX, is now down around 13-about as low as it gets.
As stock prices increase, investors-restrained by the amount of money they can throw into the market-will purchase fewer shares, Kissell noted in a recent report. And when stock prices don’t bounce around as much, investors find fewer investment opportunities, so they trade less often.
For the fourth quarter, Kissell was relatively upbeat. The research house was forecasting steady-as-she-goes volume for large caps as compared with the third quarter, and an uptick in small-cap volume.
“This is counter to typically fourth-quarter trends where markets often experience a reduction in volumes toward the end of the year due to the holiday season,” Kissell reported.
That may be good news for one small-cap trader who, earlier this year, lamented the plight of his kind in the pages of Traders Magazine. “Declining volumes, wide spreads and a lack of liquidity have made these issues a nightmare for any trader looking to execute an order of even moderate size,” wrote Dennis Dick, a trader with proprietary shop Bright Trading.
If volume is down, can commissions be far behind?
Institutional commission data isn’t available for 2013 yet, but anecdotal evidence suggests it is not trending up.
Dennis Fox, head trader for Munder Capital Management of Birmingham, Mich., told Traders Magazine recently that buyside budgets were tight and that “as commission dollars are down, we are going to pay people less.”
The skinnier wallet is certainly making itself felt on the sellside. Larger brokers are consolidating their high- and low-touch desks. Smaller brokers are disappearing altogether or jettisoning their equities groups.
In June, Greenwich Associates reported that institutional commissions declined by 15 percent to $9.3 billion in the year that ended in February.
The survey shop reported that most major brokers were not expecting an upturn any time soon and were shaping their businesses around the $9 billion to $10 billion mark.
