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TRADING STRATEGY
Market Structure
US Monthly Chartbook – US Market Calms While Asia Heats Up
Global Average Daily $Value Traded
US Daily Volume Traded (billion shares)
Asia Europe Americas US Stocks US ETFs
2013 $69 $39 $231 $160 $62
2014 YTD $73 $47 $266 $189 $69
+5% +21% +15% +18% +11%
All US US Stocks US ETFsExcluding
Odd Lots
2013 6.18 5.14 1.04 6.18
2014 YTD 6.37 5.30 1.07 6.12
+3.1% +3.1% +2.8% -0.9%
Market Commentary 4 December 2014
After October’s excitement, November volatility (and, with it, volume) reverted lower – but not quite to the multi-year
lows we experienced over the summer (see page 2).
Consistent with the “calming” theme: “fear” (measured by our Credit Suisse Fear Barometer) receded (p.4), spreads
came in (p.7), off-exchange volume increased (p.7), HFT was less active (based on our proxy of quote rates; p.6),
and correlation hit a 10-year low (p.4).
The story was different overseas, though, particularly in Asia. November was the busiest month in at least 7 years
(see page 2), owing mainly to financial reforms in China.
European markets have been very active all year as the region continues to struggle economically. As the bubble
chart below shows, every country in Europe has had higher $value traded this year compared to last year.
Regulators have also been active. We provide an update of the latest issues currently on the SEC’s radar on page 5.
Ana Avramovic + 1 212 325 2438
Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy
TRADING STRATEGY
2
US Volumes
US Monthly Volume Relative to Year’s Average
Average US Daily Volume
Global Trading
Asia Average $Notional Traded by Month
Europe Average $Notional Traded by Month
Breakdown of Global $Notional Traded
Breakdown of Global Share Volume Traded
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Jan Feb Mar April May June July Aug Sept Oct Nov Dec
mo
nth
's v
olu
me
rela
tive
to
yea
r's
aver
age
Monthly Volume Relative to Year's Average
Avg over past 15yrs
2014
Europe$4713%
Asia$7319%
US Equities$18950%
US ETFs$6918%
Breakdown of 2014YTD Avd Daily Global $Value Traded (amounts in $Billions)
Europe7.6
10%
Asia63.7 82%
US Equities5.3 7%
US ETFs1.1 1%
Breakdown of Total 2013 Global Volume Traded(amounts in billion shares)
Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy
TRADING STRATEGY
3
Global Market Caps (Free Float)
USA, $20,382
JAPAN, $3,624
UK, $2,900
FRANCE, $1,798
CHINA, $1,571
CANADA, $1,557
GERMANY, $1,497
SWITZERLAND, $1,318
AUSTRALIA, $1,029
INDIA, $910
KOREA, $900
HONG KONG, $730
BRAZIL, $703
TAIWAN, $662
SPAIN, $659
SWEDEN, $492
ITALY, $457
NETHERLANDS, $444
SOUTH AFRICA, $422
RUSSIA, $381
MEXICO, $328
MALAYSIA, $318
SINGAPORE, $313
THAILAND, $304
BELGIUM, $295
DENMARK, $257
INDONESIA, $251
TURKEY, $192
NORWAY, $171
PHILIPPINES, $153
FINLAND, $146
CHILE, $138
POLAND, $126
COLOMBIA, $94
ISRAEL, $86
IRELAND, $59
GREECE, $51
0
5
10
15
20
25
30
35
40U
nit
ed
Sta
tes
Spai
n
Be
lgiu
m
Ne
the
rlan
ds
Fran
ce UK
Can
ada
Isra
el
Swe
de
n
Swit
zerl
and
Jap
an
De
nm
ark
Ge
rman
y
Au
stra
lia
No
rway
Ital
y
Fin
lan
d
Po
rtu
gal
Au
stri
a
Ho
ng
Ko
ng
Ire
lan
d
Sin
gap
ore
Ne
w Z
eal
and
bid
-ask
sp
rea
d (
bp
s)
Avg Bid-Ask Spreads (Developed Countries)
0
10
20
30
40
50
60
70
80
Ind
ia
Ru
ssia
Sou
th A
fric
a
Hu
nga
ry
Me
xico
Bra
zil
Czech…
Po
lan
d
Ch
ina
Ko
rea
Turk
ey
Taiw
an
Egyp
t
Ind
on
esi
a
Mal
aysi
a
Ph
ilip
pin
es
Ch
ile
Gre
ece
Thai
lan
d
Qat
ar
UA
E
Co
lom
bia
bid
-ask
sp
read
(b
ps)
Avg Bid-Ask Spreads (Emerging Countries)
Global Bid-Ask Spreads
(Amounts in $Billions)
Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy
Source: Bloomberg
TRADING STRATEGY
4
Volatility & Market “Fear”
Intraday Volatility – S&P 500
Intraday Volatility –Russell 2000
1-month S&P Realized Correlation
Credit Suisse Fear Barometer
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
9:3
0
10:0
0
10:3
0
11:0
0
11:3
0
12:0
0
12:3
0
13:0
0
13:3
0
14:0
0
14:3
0
15:0
0
15:3
0
Price
Change in
30
min
Inte
rval..
.
Intraday Volatility - S&P 500
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
9:3
0
10:0
0
10:3
0
11:0
0
11:3
0
12:0
0
12:3
0
13:0
0
13:3
0
14:0
0
14:3
0
15:0
0
15:3
0
Price
Change in
30
min
Inte
rval..
.
Intraday Volatility - Russell 2000
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
0%
10%
20%
30%
40%
50%
60%
70%
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-1
3
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Implied vs Realized Correlation
0
5
10
15
20
25
30
35
40
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-1
3
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Ind
ex
Leve
l
Source: Credit Suisse Trading Strategy Source: Credit Suisse Trading Strategy
Source: Credit Suisse Derivatives Strategy Source: Credit Suisse Derivatives Strategy
TRADING STRATEGY
5
Regulatory Update: What to Watch
Topic Description Status
Widen Tick Sizes
The SEC has proposed a pilot program to change tick sizes for small/midcap stocks
The pilot consists of 3 test groups plus a control and would run for 1 year
For specifics, please see Sufferin Smallcaps
Currently in comment period through Dec 2014.
Consolidated
Audit Trail
Create a fully consolidated audit trail of all NMS securities.
Regulators assert it would complement, rather than replace, the large trader reports.
Still in bidding process; reporting not likely to begin before 2016.
Access Fees
Some argue that exchange access fees are too high.
High access fees increase internalization as venues try to avoid paying the excessive fees.
Nasdaq plans to introduce a pilot to test lower access fees.
The program would start in February, cover 14 stocks, and would lower fees to 7 cents for providing liquidity / 6 cents to take.
Maker-Taker
Pricing
Various industry participants have expressed concern
that rebates provide the wrong incentives and have caused unnecessary market fragmentation as each
exchange group adds new exchanges with different
pricing schemes.
ICE CEO Sprecher has called for a complete ban on maker-taker pricing.
Nothing pending
SIP Operation An issue with the SIP caused the Nasdaq to go down
for 3 hours in August (see Exchange Procedures above).
Despite initially saying they no longer wanted
responsibility for running the SIP, Nasdaq recently won a bake-off to continue to do so.
Review Exchange
SRO Status
SIFMA has formally requested that the SEC reassess whether exchanges should retain status as Self-
Regulatory Organizations (SROs).
As SROs, they enjoy limited liability and have
regulatory power over competitors (ATSs).
SIFMA's letter sent July 2013.
The idea is gaining support across the industry, with the media, members of Congress and even an SEC
commissioner weighing in.
Review of
Exchange
Procedures
Following Nasdaq's outage on Aug 22, SEC Chairman White met with officials from NYSE and Nasdaq,
giving them 60 days to work together on a plan to
identify points of weakness and how they will address
them.
Nasdaq & NYSE submitted a joint plan that addresses:
enhancing SIP durability
"critical points" (halts, open/close)
harmonizing halts
kill switches
TRADING STRATEGY
6
Quote Changes (proxy for HFT activity)
Managed Funds
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,0001
-Jan
-10
1-M
ar-1
0
1-M
ay-1
0
1-J
ul-
10
1-S
ep
-10
1-N
ov-
10
1-J
an-1
1
1-M
ar-1
1
1-M
ay-1
1
1-J
ul-
11
1-S
ep
-11
1-N
ov-
11
1-J
an-1
2
1-M
ar-1
2
1-M
ay-1
2
1-J
ul-
12
1-S
ep
-12
1-N
ov-
12
1-J
an-1
3
1-M
ar-1
3
1-M
ay-1
3
1-J
ul-
13
1-S
ep
-13
1-N
ov-
13
1-J
an-1
4
1-M
ar-1
4
1-M
ay-1
4
1-J
ul-
14
1-S
ep
-14
1-N
ov-
14
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Tota
l ass
ets
($B
n)
Total Assets Across Funds
Money Market Funds US Equity Mutual Funds Global Equity Mutual Funds Bond Mutual Funds
Hedge Funds all ETFs US Equity ETFs
Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy, ICI, HFR
TRADING STRATEGY
7
Fragmentation
Venue Market Share Over Time
US Bid-Ask Spreads
Average Bid-Ask Spreads for S&P 500 vs VIX
Other Exchanges = NYSE Amex + CBSX + Chicago + National + PSX
Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy
Source: Credit Suisse Trading Strategy
TRADING STRATEGY
8
HOLT Chart of the Month – 3Q Earnings: Good News & Bad News
The good news is that the Russell 1000
index delivered its highest EPS beat rate
(74%) in three years, coupled with 9% YoY
earnings growth.
The bad news is that declines in consensus
forecasts in the U.S. have become
significantly more widespread and index level
revisions in October were sharply negative.
Although the Energy sector was responsible
for over 60% of the change to Russell 1000
forecast CFROI® levels, weakness in
earnings sentiment across all other sectors
has still reached 18-month lows.
Included within the report are a number
of screens to aid investors in the idea
generation process.
Link to Full Report: HOLT 3Q 2014 Earnings Review
RIY Index CFROI (EPS) Revisions (%)
HOLT Composite Factor & Style Performance
Composite Factors: Momentum was the only factor with positive returns in November, and it has been the best-performing factor
YTD. After a strong start to the year, valuation has generated nearly a -4% long/short return since May.
Source: Credit Suisse HOLT Data Date: 11/28/2014
Style Portfolios: HOLT Styles are formed from different combinations of the composite factors (left chart): Quality (Q),
Momentum (M), and Valuation (V). Quality at Any Price, which features high quality stocks with strong momentum characteristics
and premium valuations, have outperformed in each of the last 3
months.
Source: Credit Suisse HOLT Data Date: 11/28/2014
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Valuation(HTUSVALL/S)
Quality(HTUSQTLL/S)
Momentum(HTUSMOML/S)
HOLT Composite Factor Long/Short Return
Sept Oct Nov YTD
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Wors
t in
Cla
ss
HTU
SW
INC
(Q-
M-
V-)
Rest
ructu
ring
HTU
SR
STR
(Q-
M+
V
+)
Val
ue T
rap
HTU
SV
ALU
(Q-
M-
V+
)
Best
in C
lass
HTU
SB
INC
(Q+
M
+ V
+)
Qual
ity a
t A
ny
Price
HTU
SQ
AA
P
(Q+
M
+ V
-)
Mom
entu
m T
rap
HTU
SM
OTP
(Q-
M+
V
-)
Contr
aria
n
HTU
SC
ON
T
(Q+
M
- V
+)
HOLT Style Relative Return
Sept Oct Nov YTD
TRADING STRATEGY
9
CREDIT SUISSE QUANTITATIVE & STRATEGY TEAMS
Trading: Ana Avramovic +1 212 325 2438 [email protected]
Victor Lin +1 415 836 7643 [email protected]
Hedge Funds: Mark Connors + 1 212 325 5281 [email protected]
HOLT/Quant: David Rones +1 212 325 2427 [email protected]
Richard Curry +1 212 325 9545 [email protected]
Greg Williamson +1 212 325 6513 [email protected]
Derivatives Edward K. Tom +1 212 325 3584 [email protected]
Mandy Xu +1 212 325 9628 [email protected]
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