The Perfect Monster ETF Trade Just Played Out

May 11, 2017

Moving The Underlying Needle A Bit

This suggests to me that perhaps (and this could be a bit of a reach), the liquidity provider filled this order on May 1 at 11:49 a.m., then started building the basket of stocks as best they could to do the big creation with PowerShares. That buying then pushed the underlying stocks up ever so slightly.

This is not an (entirely) crazy idea: EEMO weights roughly 10% in Samsung, for example, which trades about $800 million a day. Showing up with a $25 million buy order on the morning of May 2 has to move the needle at least a little bit.

This is the beautiful thing about the creation/redemption process. The demand for the ETF flowed directly out into the underlying markets, just as if the institutional buyer here had just started buying up emerging market stocks one by one.

Back To EEMO

Once that monster trade hit the tape, it was an object lesson in “algos gone wild.” Dozens of 100-share prints run from half a second after the print, then the one-share trades and the larger volume trades followed. By the end of the day, 15.982 million shares had traded, meaning 288,180 shares traded hands that weren’t part of the monster trade.

That would have made it the biggest day for EEMO, which was launched in 2012, I can find for the past few years. Volume follows volume, and in this case, that volume has stuck around, at least a little. In the seven trading days since the big trade, volume has been consistently in the 50,000-shares-a-day range. That’s hardly hyperliquid, but a far cry from the literal zero-share days that were far more common in the past. Spreads have also come in substantially even for normal-sized lots.

To me, the best part of this story is that basically nobody noticed. EEMO went from a “have not” to a “have” overnight, bringing assets and liquidity where there was none.

And somewhere, a giant institution now has the exposure they want, all through a simple, single trade that perfectly transmitted the buying pressure cleanly into the underlying markets.

At the time of writing, the author owned none of the securities mentioned. You can reach Dave Nadig at [email protected].

 

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