Exchanges Agree to Add Smaller Trades to U.S. Stock Volume Count
Stock trades of fewer than 100 shares that have traditionally been excluded from U.S. share volume tallies are poised to be added to the count.
The New York Stock Exchange, the Nasdaq Stock Market and the Financial Industry Regulatory Authority Inc. agreed on a plan to add odd lots to official records of daily trading in individual stocks and the overall market, Colin Clark, NYSE Euronext senior vice president and representative to the CTA Operating Committee, said in an e-mailed message.
“Consolidated tape participants approved adding odd lots to the trade feed, and work is currently under way on implementing the details,” Clark said. Wayne Lee, a Nasdaq OMX Group Inc. spokesman, declined to comment. Finra spokeswoman Nancy Condon declined to comment.
Rising share prices and the spread of computer strategies have reduced the size of stock trades. The average transaction for a company in the Standard & Poor’s 500 Index has shrunk to fewer than 200 shares from about 800 a decade ago, according to data from Credit Suisse Group AG.
Adding odd lots to daily reports from the NYSE (NYX) and Nasdaq will provide a clearer picture of the U.S. stock market, according to Maureen O’Hara, a finance professor at Cornell University who has studied the issue. The data will only be used for volume and will not be included in price information.
“The reality of odd lots is that they’re not odd anymore, and that’s the problem,” O’Hara said in a June 20 telephone interview. “They’re numerous. The numbers have pushed regulators and exchanges to recognize what everybody already knows.”
While putting smaller trades in the official count will raise the daily volume, it won’t come close to pushing tallies back toward levels of several years ago. In the second half of 2008, about 10 billion shares were traded each day on all U.S. exchanges. In the first half of this year, the figure was about 6.4 billion, according to data compiled by Bloomberg.
Cornell’s O’Hara, together with Chen Yao and Mao Ye of the University of Illinois, published a paper in 2011 which estimated that excluding odd lots meant 4 percent of stock trading volume was omitted. After updating their data ahead of publication in a forthcoming issue of the Journal of Finance, the authors say that figure is 4.9 percent.
The new data covered 120 Nasdaq-listed stocks from Jan. 1, 2011, through the end of November that same year. The research found that nearly 53 percent of Google Inc. (GOOG) trades were for fewer than 100 shares, making up 23 percent of Google’s trading volume over the period. Roughly 38 percent of Apple Inc. trades were odd lots, according to the updated paper.
O’Hara said that on average about 24 percent of a stock’s trades fell below the 100-share threshold.
Higher prices for individual stocks are one reason odd lots have increased. Stock splits have diminished in recent years and that, combined with a rising market, has sent the average share price for S&P 500 companies to about $65, from $35 a decade ago, according to data compiled by Bloomberg. Google shares are trading for $865 each, while Apple stock is at about $400.
Odd-lot trading has increased partly because buying 100-share blocks of shares such as Google and Apple is too expensive for many individuals, and partly because of the rise of algorithmic trading, O’Hara said.
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