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Low Trading Activity Restrainining Broker-Dealer ETF


Even though U.S. equities are breaking new record highs, trading desks seem less than thrilled. As trading volume dipped to its lowest level for May since the financial crisis, broker dealers, along with related exchange traded funds, could face leaner times.

The iShares US Broker-Dealers ETF (IAI) is down 6.2% over the past three months and declined 4.8% year-to-date. [Broken Down Broker-Dealers ETF]

According to Credit Suisse Trading Strategy data, trading volume on major U.S. exchanges averaged 5.7 billion shares per day last month, reports Dan Strumpf for the Wall Street Journal.

“The worst thing for a trading desk is for it to be slow,” Michael Antonelli, a trader for Robert W. Baird & Co., said in the article. “It’s a tough job when it’s slow because you start to overanalyze everything.”

Trading has been continually slowing down since the sharp uptick after the financial crisis in 2009. Last year, daily average U.S. stock trading volume was down 37%.

“It just seemed like someone turned the switch off,” Peter Schwartz, a stock trader at Macquarie Group Ltd.’s New York trading desk, said in the article

In light of the muted economic growth, unimpressive first-quarter earnings and rising stock valuations, investors are mostly staying put. Additionally, long-term investors are less active after last year’s impressive equity rally and are unenthusiastic about the low rates in fixed-income assets. [Tactical Sector ETFs]

The low volume trades is reflected by large benchmarks’ low day-to-day volatility. For instance, the Dow Jones Industrial Average has only made one 2% or more daily move this year, whereas the Dow has spiked 2% or more 10 times by this time of year in 2010 and 33 times in 2009 for the same period.

“If it’s this slow now, I’m dreading July and August,” Antonelli added.

The dip in trading activity is weighing on financial firms. For instance, U.S. banks like J.P. Morgan Chase (JPM), Bank of America (BAC), Citigroup (NYSE: C), Goldman Sachs (GS) and Morgan Stanley (MS) have seen total employment fall 9% since the end of 2011 as revenue remains flat.

The iShares U.S. Broker-Dealers ETF tracks U.S. investment banks, discount brekerages and stock exchanges. Looking at its underlying holdings, GS is 6.6% of IAI’s portfolio and MS is 6.5%,

iShares US Broker-Dealers ETF


For more information on brokerage firms, visit our broker dealers category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.