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THE OFFICIAL NEWSPAPER OF TRADETECH 2020
Sell-side
Virtu Financial study reveals surge in
trading costs globally during March
WHILE SPREADS GLOBALLY HAVE FALLEN FROM HIGHS SEEN IN MARCH, THEY ARE STILL HIGHER THAN EARLIER IN THE YEAR
AS MARKETS REMAIN UNCERTAIN AND VOLATILE.
T
rading costs globally have surged follow-
ing increased market volatility during the
coronavirus pandemic, and despite declining
recently they remain higher than before the
crisis, according to data from Virtu Financial.
A study from the brokerage and analytics
division at Virtu Financial, seen by The TRADE,
has revealed that following a spike in volatility
and wider spreads in March, trading costs as
captured by its ‘Global Peer Universe’ spiked
significantly, with every region seeing a large
increase in the first quarter this year.
US trading costs surged 42% in the first quar-
ter compared to the quarter prior, with March
costs increasing to a high of -63.7 bps. At the
same time, trading costs in the UK surged 76%
during the period, 55.2% in Europe – excluding
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the UK, and 78% in Asia Pacific – excluding
Japan.
Spreads for the S&P 500 have since decreased
significantly from the highs in March, with mar-
ket impact costs for a 500mm portfolio in the
index starting to drop after hitting 14.4 bps on 9
April, down from 19.95 bps in late March. Virtu
added that a 500mm portfolio in the UK’s FTSE
100 remains the most expensive.
While spreads globally have fallen from the
highs seen in March, Virtu Financial said they
remain elevated compared to January due to
the ongoing sense of uncertainty and volatility
in equities and currency markets, that will most
likely continue.
Virtu’s Global Peer database uses proprietary
transaction data from asset managers encom-
passing more than 20% of all institutional eq-
uity trades globally. The firm has seen increased
demand from clients to produce market impact
models in light of the recent volatility. Virtu
provides quarterly ‘Global Cost Review’ reports
for clients to analyse execution costs.
“More and more clients have incorporat-
ed market impact models into their trading
process directly so it’s critical that their models
adjust dynamically,” Virtu said. “We’ve been
writing several mini pieces to answer these
client questions which clients are in turn using
to adjust trading strategies, communicate to
senior management internally around prevailing
market conditions and to manage portfolio
managers expectations around trading cost
outcomes.”