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Question of the Week - Nov 24th 2015

How did extreme market conditions in late August affect transaction costs in the US?

 

Chart 1:  Spread and Volatility metrics for the S&P 500  

 

Chart 2:  IS Peer Cost Distributions by Quarter in the US  

  • We assume that extreme market conditions on August 24th had a measurable impact on transaction costs and we’d like to quantify the results.
  • Average spread of an S&P 500 constituent hit a two year high of 9 bps on Aug 27th. Volatility was on the rise prior to the events of August 24th, and continued to trend upward through September.
  • Weighted average and median transaction costs for an order did not change significantly in Q3, but we do see a wider distribution of cost, which indicates an increased liklihood of a bad outcome.

 

Transaction cost distributions are based on ITG Peer Group Database, which contains order-level information from approximately 180 buy-side institutions. Implementation shortfall costs are measured relative to the release to the desk and are expressed in basis points. The above chart show the cost distribution from the 10th to 90th percentiles.Q3 2015 ITG Peer Group Database statistics is based on preliminary data as of 11/10/2015.

 

Refer to ITG Peer Analytics for information on available ITG Peer Group Database based analytics.

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