ORB Liquidity Revisited: in this edition we return to the topic of liquidity and examine how things have changed since our first examination of it.
- Overall liquidity remains good, with turnover of ORB dedicated issues typically ranging between 25% and 50%.
- Retail participation remains strong and continues to dominate trading on the electronic book and, to a lesser extent, for the ORB dedicated issues.
- Volumes traded on the electronic book continue to be a small proportion of ORB trading, with the majority happened through market makers.
- Reflecting the growing importance of this market to both retail investors and issuers, Hardman & Co has produced the following detailed report. This work has been undertaken by our Financials Analyst Brian Moretta.
ORB Liquidity Revisited
Executive Summary
Using data from the London Stock Exchange we update our liquidity analysis from two years ago. Overall liquidity remains good and retail participation is strong. However the strong trends that were evident in 2013 are now absent and the market appears to be in more of a business as usual state. Against our expectations, volumes on the electronic order book have not grown and it remains a small, but important, part of ORB.
Introduction
In our first quarterly review, which is now two years old, we examined liquidity on ORB and dispelled the myth it was a thin, illiquid market. We felt it was time to update our analysis, particularly in the light of the different market conditions that we have seen over the last few months.
As before, we have used data from the London Stock Exchange. They have improved the quality of their data collection and we use their data without any adjustments. The data now starts from 1 January 2013. For corporate bonds, which we again focus on in this article, this covers £13.8bn of value traded in 174,107 trades.
A word on nomenclature. Although strictly speaking the name ORB refers to the electronic order book, it has come to be used for the retail bond market as a whole. We will use ORB in that way, and use the terms ‘on the order book’ and ‘non-order book’ to refer to trading that takes place on and off the electronic order book respectively.
The gilt market is not the focus of this report, but it is worth a brief comment. At the time of our last article on the topic there had been rapid growth of gilt trading on the order book. We speculated that this could be the start of a virtuous circle that may lead to much gilt trading moving to the order book. So far we have been completely wrong on that. In 2013 volumes remained much stronger than they had been prior to then, but since then they have fallen away somewhat, with monthly trading volumes in the £1-10m value range. Overall 0.01% of gilt trades have taken place on the order book – less by value – and it remains a very small part of that market.
Continue reading the full report from Hardman & Co here: ORB Review 15Q2_v2_0
