Quarterly cash equity market data: Methodology and definitions

Transcription

1 INFORMATION SHEET 177 Quarterly cash equity market data: Methodology and definitions This information sheet is designed to help with the interpretation of our quarterly cash equity market data. It provides definitions of important concepts and explains the methodology used for the statistics provided. Background and methodology On 1 August 2010, ASIC commenced supervision of real-time trading on Australia s domestic licensed markets. Before this, supervision was conducted by ASX and a number of other domestic market operators. We receive data via our market surveillance system. This captures all orders and trades in Australian equity market products. This is the primary source of equity market statistics reported by ASIC. ASIC's market surveillance system was replaced in the second half of From 1 October 2013, equity market data is obtained from the new surveillance system utilising the existing methodology. Some minor discrepancies exist between the two surveillance systems but these are not significant when examining aggregate market data. Data reported covers all ASX-listed equity market products, as defined in ASIC Market Integrity Rules (Competition in Exchange Markets) Unless otherwise stated, the statistics cover all orders and trades, including those outside the normal opening time for exchanges, with the exclusion of booking purpose trades and the exercise of put options and call options. For a detailed explanation of key terms, see Key terms in Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223). Table 1 lists the statistics provided in our quarterly cash equity market data. Table 1: provided in our quarterly cash equity market data Market characteristics Number of trades and dollar value traded Market share of trades and dollar value traded Indicate aggregate activity in the market Indicate the composition of trading across different execution venues and mode of trading (with or without pre-trade transparency) Page 1 of 5

2 Index of market concentration in Australia Order-to-trade ratio Volatility Effective bid ask spreads Quoted bid ask spreads Depth at best 5 price steps Market characteristics Shows concentration and by extension, fragmentation in the market. A measure of concentration for the total market and public venues is provided. Often used as a proxy for the degree of automation on exchanges and the degree of noise in the market Shows trends in price variation on both an intraday and interday basis Market efficiency Describes the cost of accessing immediate liquidity one component of the overall cost of trade Describes the average spread displayed on lit exchanges Indicates the availability of accessible passive liquidity through the day Market characteristics: Definitions and methods Execution venues Trades executed or reported to execution venues are detailed in Table 2. Table 2: Category Details of trade types by execution venue Definition ASX on-order book ASX auctions ASX Centre Point ASX trade reporting Chi-X on-order book Chi-X trade reporting All trades executed on ASX TradeMatch with the exception of priority crossings and auction trades Trades executed at the open, closing or intraday auctions Trades executed on the ASX Centre Point order book All prearranged crossings reported to ASX. This includes block size trades, large portfolio trades, priority crossings, at or within the spread (national best bid or offer (NBBO)) trades and trades matched out of hours All trades executed on the Chi-X order book, including hidden orders All prearranged crossings reported to Chi-X. This includes block trades, large portfolio trades, at or within the spread (NBBO) trades and trades matched out of hours Average trade size This is the total value traded divided by the number of trades. A large order that executes in a number of smaller trades is counted as multiple trades, thereby reducing the calculated average trade size for a particular stock or execution venue. Page 2 of 5

3 Dark liquidity Dark liquidity refers to orders that are not known to the rest of the market before the orders are matched as executed trades. Such trades, known as dark trades, can occur on exchange markets (e.g. ASX s Centre Point and hidden orders on Chi-X s order book) and in venues other than exchange markets. Rather than routing an order to a market, a market participant may choose to fill the order from its own inventory (known as internalisation), or may choose to cross it with other client orders. The statistics on dark trading represent the proportion of total value traded. are provided for two categories: Block size trades this includes trades executed under the pre-trade transparency exceptions in Rule (Competition) block trades and Rule (Competition) large portfolio trades. These trades are typically in excess of $1 million before 26 May 2013 and in varying sizes between $200,000 and $1 million from 26 May Below block size trades this includes trades that are executed without pre-trade transparency and not captured under Rules or (Competition). These trades must be executed at or within the NBBO before 26 May 2013 and within the NBBO from 26 May Note: In this document, Rule (Competition) (for example) refers to a particular rule of ASIC Market Integrity Rules (Competition in Exchange Markets) Order-to-trade ratio This is the total number of displayed messages (i.e. orders that are newly entered, amended or deleted) as a ratio of the total number of trade messages. Trades that have no associated displayed orders (dark trades) are not included for the purpose of this calculation. If a market order executes in multiple trades, this is captured as the actual number of trades reported. This is used interchangeably with the term message-to-trade ratio. Trading profile The trading profile captures changes in activity by mapping the value and number of trades matched on-order book (the ASX TradeMatch, ASX Centre Point or Chi-X order books) through the day. Trades executed in the ASX auction are also included. Market volatility The volatility indicators measure the standard deviation of log price changes (midpoint prices) per stock per minute and over 5 minutes (intraday) and closing prices per day (interday). For the intraday volatility measure, the daily standard deviation for each security is averaged over the period.. The interday measure reports the standard deviation of log price changes (closing price to closing price) over the month. Volatility is calculated as: Vol =,, Vol is then weighted by turnover across securities. This provides an indication of the variability of prices in the market and the potential degree of risk in executing trades. Market concentration: Definitions and methods The Herfindahl Hirschman index (HHI) is a measure of market concentration defined as the sum of the squares of the market shares (expressed as fractions) of execution venues. In practice, the index can range from close to zero (denoting a highly fragmented market that is, a market solely composed of numerous but small venues) to one (a monopoly). For a market with n venues the index is calculated as: Page 3 of 5

4 HHI = We provide two series, which represent the concentration of all execution venues and the concentration of publicly accessible execution venues: Total market HHI this includes ASX on-order book (including auctions and excluding ASX Centre Point), ASX Centre Point, Chi X on-order book, and each market participant s total crossing turnover (i.e. crossings matched by market participants are considered separate liquidity for this measure). Public venues HHI this represents the concentration of liquidity that is available and accessible for all investors. This includes ASX TradeMatch on-order book (including auctions and excluding priority crossings), ASX Centre Point and Chi-X on-order book. Trades matched by market participants and reported to a market are not included in this calculation. Market efficiency: Definitions and methods There are a number of measures of market efficiency. These have been reported as a weighted average for all equity market products and a weighted average for securities in the S&P/ASX 200. Weightings For all measures of market efficiency, calculations are performed on a per security per day basis. The average observations at an individual security level are then combined with all securities to provide weighted average market-wide indicators. Weightings are determined by the contribution of each security to total market turnover. This captures the relative importance of different securities, thereby placing greater emphasis on those securities that are more actively traded. Spreads and depth are reported in basis points where 1 basis point (bps) equals 0.01%. Quoted bid ask spreads Quoted bid ask spread is the average difference between the best (lowest) ask price and the best (highest) bid price divided by the prevailing midpoint price measured across ASX and Chi-X markets. The market is sampled every minute during continuous trading hours with the average spread per security reported on a daily basis. For every security and for every minute during trading hours: Quoted spread = The quoted spread is then averaged across time and weighted across securities. This measure provides an indication of the average cost of accessing passive liquidity through the day. Effective bid ask spread The effective spread represents the actual cost for an aggressive order to immediately access liquidity in the market. This is measured for trades executed during continuous trading hours (excluding block and portfolio special trades) and weighted by each trade s contribution to each security s turnover. For each trade and for each security: Effective spread = The effective spread is then weighted across securities. Page 4 of 5

5 Depth Depth of the order book is measured as the average number of shares at the first five available price steps each side of the midpoint price divided by the number of shares on issue for each security. For every security and for every minute during trading hours: Depth = Depth is then averaged over time and weighted across securities. This measure indicates the availability of accessible passive liquidity through the day. Data on issued securities is not available within ASIC s surveillance system for the full historical period, reducing the time series for this indicator. Where can I get more information? Download Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223). Contact ASIC on Page 5 of 5