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With the close now representing 21 % of average daily volumes , the challenge of continuous intraday liquidity is leaving institutional asset managers searching for alternative sources of liquidity .
Although there have been recent efforts to improve access to the close , the question is whether other sources of activity such as retail flow also now represent a valuable liquidity opportunity .
The increase in retail flow and investor appetite for meme stocks captured headlines at the start of the pandemic , in particular in the US where the combination of COVID-19 related stimulus cheques , together with reduced sport betting opportunities , acted as a trigger for the public to focus their attention on capital markets . Europe has also seen an increase in retail trading .
The growth is evidenced by transaction results released by Equiduct , the pan-European retail-focused exchange , which has seen an 88 % increase in average daily volumes ( ADV ) for 2020 reaching ¤ 283 million , up from ¤ 149 million in 2019 .
While European activity remains smaller than the US , there is now a distinct trend emerging . The move to online trading on mobile apps will further spur retail investors ’ appetite and techsavvy generations are growing accustomed to trading at their fingertips . This is particularly attractive given the zero return on cash savings versus the promise of ‘ zero-cost fee ’ trading .
Traditionally , institutional traders have had little incentive to tap into this flow , given the relatively small order size and
RETAIL FLOW : the new El Dorado for the buy-side ?
Almost half of buy-side firms would like to engage with retail trading flow , following a huge uptick in volumes .
infrequency of trading . However , this now looks set to change : 48 % of buy-side firms would like to engage with retail according to an outreach conducted by Redlap Consulting with 30 global heads of trading .
“ We may get thousands of orders of 10 shares rather than one fill , but it ’ s still in our interest as there is zero market impact and in certain FTSE 250 names it can represent 25-30 % ADV – that ’ s liquidity we want to engage with ,” said one large global asset manager .
The key differentiator to actively tap into retail flow will be automation . Asset managers engaging with retail service providers are fully aware of the smaller order size retail will offer . However , if the process is fully automated it no longer matters whether there is one or 100 clips , this is liquidity the buy-side needs and can engage with effectively .
Unlike the US , the retail market in Europe is fragmented . In the UK , most of the trades are executed via retail service providers off exchange ,
12 // TheTRADE // Winter 2021