Program trading volume is growing, primarily because the buyside is trading more of its foreign stocks that way, according to a new Greenwich Associates study.
The survey sample also shows that program trading now represents more than half of the dollar amount traded at the participating firms, up from 46 percent in 2007.
Portfolio trading volumes by dollar amount at these firms, however, have risen more than 25 percent from last year, according to Greenwich’s report released earlier this week. The dollar volume done via portfolios at these institutions rose to $1.76 trillion in 2008, up from $1.4 trillion in 2007.
The study involved interviews with 124 North American institutions, which included hedge funds, and was conducted from December 2007 to February 2008.
“[Program trading] is an inexpensive way of executing less time-sensitive business,” says Jay Bennett, a managing director at Greenwich Associates. Bennett says the environment played a role in investment managers’ decisions to do more program trading.
To begin with, the volatile market led to more portfolio rebalances, such as those of self-managed pensions using index-based funds, he says. Also, long-only managers moved to program trades to lower their costs.
The study found that trading in European stocks climbed to 17 percent of total portfolio trading volume in 2008, up from 13 percent in 2007.
The study also points out that these North American firms traded less basket volume in their own markets this year. These institutions traded about two-thirds of all program trades in North American markets. That’s down from 75 percent in the previous year’s study on program trading.
This squares with what Ken Marschner, head of U.S. portfolio trading at UBS, has seen lately from his desk. He’s witnessed his buyside clients opt for more global exposure. “Clients are becoming more sophisticated,” he says, “in that they’re trading more global products.”
