It is turning out to be a long quiet summer for European equities teams. Equity volumes have slumped and block trades, which can be a lucrative source of commission revenue for cash equities desks, are down in line with overall trading levels.
Block trades, typically defined as a trade of more than 5% of daily trading volume, require fund managers to have a decent degree of conviction about the direction of a particular sector or stock, something that seems to be completely lacking because of macroeconomic concerns.
Another killer for block trades is the lack of liquidity, even in blue-chip stocks. The average daily trading volume in July for the FTSE 100 index was 862.8 million shares, almost half the 1612.3 million traded daily in May when concerns about the European sovereign crisis led investors to dump stock.
Scary proposition
Low liquidity makes it hard to match buyers and sellers and increases the premium that brokers demand to put their own capital at risk on large trades. "Even in the heart of the US earnings season it has been relatively quiet, which is a scary proposition for equity markets," says Brian Gallagher, head of electronic trading at Morgan Stanley in London.