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TD Cowen Market Structure:  An Update on Liquidity

Image of algorithmic trading representing not just a color coded graph but a recent TD market structure report on liquidity.
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The Cowen Insight

  • In a review of recent trends in overall market volumes, notional volumes, ETF volumes and indications of retail activity, we have found that – despite the extraordinary events the past few weeks – institutional activity has been lower than overall volumes may suggest.
  • We continue to see the share of non-intermediated single stock accessible volumes decline. Year-to-date in 2023, we estimate that single stock accessible liquidity is ~28.0%, down from 33.6% in 2018.
  • We also provide some suggestions for navigating volumes at the close, which have rebounded from recent declines, as well as blocks, which continue to follow a front-weighted volume curve.


With increased volatility in recent weeks, we wanted to provide an update on volumes and liquidity in the U.S. equity markets. Despite higher total volumes – particularly in the days surrounding the news of SIVB – we have seen some indications that this activity may not have been driven by institutional investors in single stocks. We’ve seen higher rates of ETF volumes, lower rates of volumes in key block trading venues, and an increase in “inaccessible” liquidity. Below is an overview of some of the metrics we have been watching and some suggestions around trading.

Total Volumes

The average daily volume in 2023 year-to-date is 11.8 B shares, which is flat versus 2022 and higher than both 2020 and 2021. However, if we look at the daily volumes – we can see that the overall volume number has been influenced by a few extremely busy days in mid-March. Following the week of March 13th, in which we saw elevated volumes due to bank solvency fears, volumes (shares and notional value) have quickly gone back to more normalized levels relative to the rest of the year.

Graph of U.S. equity volumes in 2023
Source: Cboe Exchange

If we analyze 2023 by looking at before and after March 10th (pre/post SIVB), we can see this pocket of activity a bit more clearly – with 2023 off to a fairly slow start in terms of notional and share volumes.  Even though January has historically been among the more active months of the year, we had yet to see that reflected in 2023 among institutional participants as we entered March. The below charts, plotting historical U.S. equities activity, break out 2023 share and notional volumes by before and after March 10th

U.S. equities average daily share volumne in B shares from 1998 - March 2023
Source Cboe Exchange, Inc.
U.S. equities average daily notional volume in billions from 1998 - March 2023
Source: Cboe Exchange, Inc.

ETFs continue to make up a high percentage of overall volumes, following a reasonable uptick in 2022.  This trend has been particularly pronounced the past few weeks as volatility increased.  Nearly a quarter of total share volume (and nearly 35% of total notional value traded) in U.S. equity markets has been ETFs since March 10th

ETFs as a % of Total Share Volumne from 2005 - March 2023
Sources: Bloomberg & Cboe Exchange, Inc.

Furthermore – ETF volumes remain concentrated among the most active exchange traded products.  The 25 most active ETFs represented 10.7% of total share volumes year-to-date and nearly a fifth of total notional value traded.  It’s also interesting to note that several of the most active ETFs are leveraged ETFs – a trend which continues from 2022.  These products are popular for short-term investments and hedging, and are have become more widely traded among retail investors.

Top 25 ETFs - volume traded 2023 year to date and notional value 2023 year to date
Sources: Bloomberg & Cboe Exchange, Inc.

If we pull out ETF volumes and look solely at single stock volumes, we see a different trend over the past few years than overall volumes.  Single stocks volumes had been on the decline since the meme-stock craze of 2021.  The start of 2023 saw us at 8.96 B shares ADV of single stock volumes – approaching 2020 levels (which included a relatively slow Q1 leading into pandemic-related volatility).  In the below chart we again break out 2023 volumes before and after March 10th

Single stock ADV in B shares from 2005 - March 2023
Sources: Bloomberg & Cboe Exchange, Inc.

Looking at daily single stock volumes, we can see that – other than some brief periods of heightened volumes – we seem to have normalized this year between 8 and 9 billion shares.

January - March 2023 single stock volumes by day
Sources: Bloomberg & Cboe Exchange, Inc.

If we analyze the top stocks, in terms of trading activity, similar to what we did for ETFs, we see some more interesting patterns.  There are some retail darlings that remain in the top ranks – single stocks that continue to be focal points for individual investors.  There are also a few sub-dollar names making up a large share of total volumes.  If we look at the top 25 stocks, in terms of share volumes, over 4% of total market volumes over the past few weeks has come from stocks that had average execution prices below $1.  While these securities are an area of focus for the SEC’s proposed tick-size regime (we will have a follow-up note out on that shortly), these do not tend to be primary areas of focus for institutional investors.

Russel 300 Components - most active securities by share volume (March 10-28, 2023) and most active securities by notional value traded (March 10-28, 2023)
Sources: Bloomberg & Cboe Exchange, Inc.

One of the biggest fluctuating factors in U.S. equities volumes and liquidity over the past several years has been retail trading. While our retail estimations are delayed slightly due to FINRA reporting and there is no true way to determine for certain what percentage of total volume is retail, we do have a few ways to estimate.

One factor that we look at is the share of volume traded off-exchange, since a decent portion of retail volumes are traded off-exchange via wholesalers. For the beginning of this year, we saw an uptick in off-exchange volumes versus prior years, with market share approaching 50% for parts of January. With the mid-March volatility, we saw a distinct dip in off-exchange volumes, which could indicate that retail was a smaller share of the total market, but also likely reflects increased sense of urgency among institutional investors – as they move more towards aggressive strategies than strategies that preference dark/off-exchange venues. However, off-exchange volumes have quickly recovered in more recent days.

U.S. equities % volume traded off exchange by day from January 3 - March 28, 2023
Source: Cboe Exchange, Inc.

We have also used internalized volumes at top wholesale firms as a proxy for retail trends in the past. If we look at a historical chart of these volumes, we can see a similar increase in January 2023 – suggesting retail had picked up into the end of 2022 and beginning of 2023. While we are not back at the levels seen in January/February 2021, we do see a slight elevation in recent months.

Sources:  Finra & Cboe Exchange, Inc.
Wholesale firms include Citadel, Virtu, G1/E*Trade, UBS, & Susquehanna

What is also compelling about this shift in off-exchange volume is that dark pools, which are vital sources of liquidity for institutional investors, continue to make up a smaller share of total off-exchange volumes. Despite the general rise in off-exchange volumes – only 10.7% of that has traded in dark pools so far in 2023. This again would suggest that less of what we’re seeing is institutional investing or that institutions are not targeting traditional sources of dark liquidity.

2023 share by venue type - on-exchange, off-exchange, ATS/Dark Pools and None-ATS off-exchange
Sources: Finra & Cboe Exchange, Inc.

In fact, if we look at total off-exchange volumes by year, off-exchange non-ATS volumes (>35% of total volumes year-to-date) now represent nearly as much market share as the total volume that traded off-exchange trading in prior years, like 2016-2018.

US equities breakdown of off-exchange volume 2017-2023 ATS and inaccessible
Sources: Finra & Cboe Exchange, Inc.

Volume Versus Liquidity

If we look at this data collectively – we have seen that ETFs have been growing as a share of total volumes. Single stock volumes were declining at the beginning of the year and (after a period of heightened volatility and volumes) are back to lower levels. Even though they are not back to 2021 levels, retail volumes remain elevated, and we can see the influence of retail participation in some of the most active stocks and ETFs. From a market structure perspective, U.S. equities are just as fragmented and intermediated as ever – with additional exchanges potentially opening and recently-launched dark pools growing in size. If we add all this up and try to come up with an estimate of single stock, accessible, non-intermediated volumes, we have the below estimates for 2023 (with 2018 as a comparison to the left).

Here is a breakdown of the components:

  • ETF volumes as a % total market share volume:  21.7% (full year to-date)
  • Of the 78.3% of volumes that represent single stocks:
    • 27.4% of that is off-exchange, non-ATS volumes (what we refer to as inaccessible)
    • We estimate that 45% of remaining single stock volumes are “intermediation” (22.9% of total volumes). This would be automated market making, which is buying from a seller on one dark pool one millisecond to sell to a buyer on an exchange the next millisecond. This estimate is based on the most recently available estimates of automated market making/HFT as a share of total market volumes.
    • That leaves us with 28.0% of total volumes in 2023 that we estimate is single stock, non-HFT / intermediated, accessible (on exchange or dark pool) volumes. This is down from 33.6% in 2018.
Volume vs. Liquidity for 2018 and 2023 through February 24, 2023
Sources: FINRA, Bloomberg & Cboe Exchange, Inc.

Institutional Activity

We’ve been trying to isolate volumes that we think are less indicative of institutional activity because we don’t have a true way to measure institutional volumes. However, one of the largest block venues does provide daily volume data. While it is only one venue, we do watch the volume numbers as an indicator of institutional activity – at least on a relative basis over time – particularly conditional/block activity.

The below data shows the venue’s market share daily throughout 2023. We can see a slight downward trend throughout the year. Some of that is likely related to less overall ATS/dark volumes during more volatile periods. However, these market share numbers tend to spike when institutional investors are particularly busy or active, and we really have not seen that to date.

Institutional block venue market share by day from January 3 - March 28, 2023
Source: Cboe Exchange, Inc.

If clients are looking to target periods of increased institutional activity intraday – there are a few trends we have been watching. The close is not a new story, obviously, for institutional investors. However, with the rise of retail trading over the past few years, we had seen a decline in total volumes traded at the close (with retail trading more heavily in the morning, and retail making up a larger share of total volumes). We have since seen that trend reverse- and we are back to 17.5% of total volumes trading in the final 15 minutes of the day and on the close. Most names are significantly more back-weighted than that.

Beyond that, the close also remains the time of day with the tightest spreads – so with the lower retail/inaccessible participation, heightened volumes, and tighter spreads – the end of day remains among the cheapest times to trade for an institutional investor. In quieter periods – we do tend to see an aggregation of orders around this time as institutions look to pair of with one another. The top customization we’ve been asked for in the past few months is a smart close strategy that moves an intraday strategy automatically into a closing algo, targeting real time imbalances while also liquidity-seeking in the final minutes of the day.

2019-2023 volume shifts at open & close from August 2019 - March 2023
Source: NYSE TAQ Data

On the other hand, for block and conditional volumes, we tend to see an almost inverted VWAP curve – with significantly more block/conditional volumes occurring in the first 30 minutes of the day than any other period. The below chart shows the volume curve for conditional fills via TD Cowen’s algos for 2023 year-to-date. By a margin of almost double – the first 30 minutes of the day have been the most active period for conditionals, and this has been consistent over time. To capitalize on this important source of block liquidity, we have had a few interesting customizations for clients that maximize conditional exposure, while also avoiding chasing liquidity in the first 15 minutes of the day.

One customization leverages our time-switching functionality in BEST and is benched versus the opening print. It maximizes conditional fills at or better than the opening print. At the same time, it restricts fills to midpoint or better and avoids minimum participation rates in the first 15 minutes of the day. If you’d like to try something similar, please just reach out to your TD Cowen coverage. The key point is that at times where liquidity is challenging, some clients have found that they are no longer able to entirely avoid the first 15 minutes of trading – particularly if they are seeking block fills.

TD Cowen algorithms - conditional fills (shares) by time bucket
Source: TD Cowen Execution Data


We wanted to share a review of volumes and liquidity, because – despite the extraordinary events the past few weeks – it has felt as though this may not have been the catalyst institutions were waiting on. As we review volumes, stock versus ETF activity, retail participation and other metrics, the recent spike in overall market activity does not seem to reflect a spike in single stock institutional activity. We wanted to provide some recommendations as well for how to navigate this environment. We will continue to watch and share observations on these trends. If you have any questions on these or any other market structure topics, please don’t hesitate to reach out.