Liquidity tops concerns of electronic stock traders, survey finds

By Saikat Chatterjee

LONDON (Reuters) - Equity traders see buying and selling shares with minimal market impact as the biggest challenge for 2021 in the $90 trillion stock market, a client survey by J.P. Morgan showed.

In its first global survey of more than 200 electronic equities traders, the U.S. bank found that nearly 28% of the respondents identified sourcing trading liquidity as the biggest challenge for investors, followed by regulatory changes at 16%.

While more widespread in equity markets, transacting via computers and high-powered algorithms has become increasingly popular in currency and bond markets in recent years.

The wider annual survey's results, which were published on Tuesday, come as turnover volumes have surged in many exchanges as a result of pandemic-fuelled volatility.

However, surging volumes do not indicate improving underlying trading liquidity in the markets for institutional investors as it is often split across multiple trading venues or indicative of retail interest on specific platforms.

For instance, the peak of the COVID-19 sell-off in March 2020 saw the biggest monthly turnover since November 2008 on the FTSE 100 index, Refinitiv data shows, while World Federation of Exchanges data shows Deutsche Boerse also saw monthly turnover rise to more than decade highs in 2020.

"So, you can have excess volume which can be driven by quantitative trading strategies or retail in the market, for example, but this is not all always accessible to the institutional trader," Joanna Martin, head of global liquidity solutions at J.P. Morgan, said.

"So whilst volumes did spike, liquidity availability still remains a top concern, and it's still something people seek consistent innovations, advice and consultation from us to improve and optimize," Martin added.

The widening gap between turnover and market liquidity is forcing clients to take various measures including more so-called block trades and using high-powered algorithms.

(Reporting by Saikat Chatterjee; Editing by Alexander Smith)