Our previous post highlighted how end investors could potentially bear increased costs as a result of the SEC's proposed Transaction Fee Pilot. As we expected, the post triggered a significant amount of public debate, as well as discussion between the Exchange and members of the buy and sell-side. This is an important topic worthy of discussion.
This follow-up post provides additional detail of our original calculations. We have also prepared a sensitivity analysis highlighting that substantial costs would remain for investors even if our reasonable assumptions prove, in practice, to be either too aggressive or conservative. Finally, in the interest of inviting parties to reach their own conclusions, we have created an interactive model that enables readers to input their own assumptions related to venue and liquidity type distributions. By providing their own data, readers can see the resulting estimated impact.
As noted in our introduction, we are providing a spreadsheet that enables users to input their own assumptions so they can arrive at an estimated annual impact from their firm's own data. The model includes a robust set of venue and liquidity action variables, enabling users to customize volume mixes for variables such as add/take, standard/inverted/dark venues, etc. We also include a Yes/No variable for cost-plus or pass-through pricing models. Many of the questions generated by our initial post related to volume and activity assumptions, and we expect that this model will enable readers to review their own activity distribution and see the resulting impact estimate.
We consider the substantial debate around our original post a welcome outcome. We achieved our goal of encouraging discussion of the possible impacts of the SEC's proposed Transaction Fee Pilot. We hope that future commentators will attempt to include substantive and quantifiable data in support of their stance, as we have tried to do here. We welcome feedback and continue to believe that the proposal will result in increased costs to investors due to wider spreads. We agree with the general view of many who have commented that no one can precisely predict the future and that several assumptions are required to model the possible results of the pilot. In our view, we believe that costs for end investors to take liquidity will rise.
Multi-list options broke nearly all volume records in 2021, driven by the growth of retail participation: daily records (24 of the top 25 volume days of all-time came in 2021), monthly ADV records (April was the only month from 2021 not in the top 12 all-time), and yearly ADV records (37.3M ADV in 2021 was nearly 10M more than in 2020 and double the ADV in 2019).
Increased retail activity in the equities market has affected which stocks are trading the most, and when and where those stocks trade. We’ve previously highlighted retail’s impact on pre- and post-market volume and the opening auction, and now focus on the period immediately after the opening auction. Market participants often avoid this time of day due to higher volatility, an approach worth re-evaluating given current trends.
As the home of ETFs, the NYSE continuously works to strengthen market quality and provide the optimal trading environment for listing and trading ETFs. In April 2021, in service of this goal, the NYSE introduced new requirements and incentives for its industry-leading NYSE ETF Liquidity Program, including the assignment of additional market makers ("Less Active ETF Leads") for new and/or low-volume ETFs.