Executive Summary

In January of this year, our average daily volume (ADV) projection for 2012 of 7.2 billion shares was met with disbelief by many of our constituents. The idea that volumes would fall for a third straight year was a hard pill to swallow. As it turns out, we were being a bit optimistic. Our thinking was that while the first half of the year would see anemic trading volume, activity would pick up in the second half of the year. This could very well still turn out to be true.

However, two things stand in the way. First, volumes in the first half of the year have been much lower than we projected. We believed the first half of the year would see volumes closer to 6.8b and that the second half would see volumes at 7.6b. Second, we believed that volumes would pick up as clarity around the results of the election came into focus. However, we just completed our first analysis of post-election volumes and it does not look pretty. Since 1950, volumes in the fourth quarter following a presidential election fall by 8% compared to the first three quarters.

The third quarter of an election year is also down as compared to the first two quarters. This analysis includes the figures from 2008, which of course, was an aberration for reasons that do not need repeating for this audience. Therefore, we are lowering our projection for 2012 volume. This also drives down our projections for institutional equity commissions. These will now fall by 8% compared to 2011, rather than the 5% we projected at the beginning of the year.  

Finally, market structure is back. After a deluge of ideas and improvements had been proposed shortly after the Flash Crash, market structure discussions took a back seat to Dodd-Frank, the JOBS act, and the general malaise hanging over capital markets and global economy. However, the combination of the Facebook IPO, the recently approved NYSE Retail Liquidity Program (RLP) and the raft of books and press coverage on high-frequency trading, has brought US equity market structure to the front burners once again.