08.12.2011
By Terry Flanagan

B-Ds to Capitalize on Record Volumes

Trading volumes currently experienced in the markets are at year-to-date highs, as volatility and uncertainty surround the economic landscape. This is the time when broker dealers should look to capitalize on the market volatility, and strike while the iron is hot.

As each macro event has occurred, starting with the Japan earthquake, through the continuing debt issues in the U.S. and Europe, and most recently with the Standard & Poor’s downgrade of U.S. credit, each has contributed to an eroding investor confidence, and each has also brought with it an uptick in market volatility. However, the more recent spate of market tumult has been the largest one yet, sending worldwide indices into a tailspin amid fears of a double-dip recession.

“At the end of the day, a lot of these things create uncertainty among investors,” said Sang Lee, managing partner with Aite Group. “While there is upside in the trading volume, I’m not convinced broker dealers see this as positive trading volume. In the long term you need consistent growth. If all the money goes out of the markets, it’s not good.”

As far as attracting order flow from active, high-volume participants, Lee believes that the key factors these types of traders look for is liquidity, technology, a low fee structure, accessibility, and flow diversity. The broker dealers that are able to best match these characteristics will be able to best take advantage of spikes in volatility.

“There’s still a lot of uncertainty in marketplace, these are things beyond a lot of people’s control,” said Lee. “There’s so many variables causing volatility. I don’t think it will go away any time soon. In the last few days, volume has been down a bit, but compared to the last year and a half, it’s still pretty good.”

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