US regulators to reveal hidden trades

Trading floorUS regulators will include trades of less than 100 shares, odd lots, in their publicly available consolidated data for the first time.

The move responds to research claiming an increase in the number and volume of odd lot trades, which do not appear in publicly available real-time data on exchange trading.

“While leaving odd lots out of the public feed may have been sensible in the past, fragmentation, high-frequency trading, and the widespread use of algorithms have changed markets in fundamental ways,” says Chen Yao, assistant professor of finance at Warwick Business School, who produced a paper on odd lots in association with colleagues at Cornell University and the University of Illinois.

After analysing 120 stocks on the Nasdaq between 2008 and 2011, the researchers concluded that big trades are increasingly being “sliced and diced” into small batches so they remain hidden from all but the few investment banks and high-frequency traders who pay individual exchanges for the full list of trades.

In December 2009, odd lot trades accounted for 22% of all trades, compared with 14% in January 2008, found the research.

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