Odd lot orders to be added to U.S. stock data feed

Tue Nov 20, 2012 3:41pm EST

* Trading of lots of under 100 shares has become more common

* High-priced stocks, high-frequency trading boost odd lots

* Stock exchanges, regulators, voted Oct. 24 to add to data

By John McCrank

NEW YORK, Nov 20 (Reuters) - U.S. equities exchanges and regulators have agreed to begin reporting stock orders of less than 100 shares, common in high-priced popular names like Apple Inc and Google Inc, on a feed of real-time stock data, in an effort to boost market transparency.

Members of the exchanges and the Financial Industry Regulatory Authority voted on Oct. 24 to include the orders - known as odd lots - in the data, said Colin Clark, a senior vice president at NYSE Euronext. The U.S. Securities and Exchange Commission was also represented at the meeting, he said.

While investors can place orders for any number of shares, odd lots are not currently displayed on the consolidated feed of stock transactions, adding opacity to the market, said Maureen O'Hara, a Cornell University professor who co-authored a paper on the subject.

"Post-trade transparency, that is, the ability to know what has happened in the market, is something that is important and hiding the odd lots has ended up dramatically decreasing post-trade transparency," she said. "This is really just a question of catching up with the modern evolution of the markets."

Twenty years ago, odd lots accounted for less than 1 percent of trades, and came almost exclusively from the retail sector - think grandpa giving 10 shares of McDonald's as a Christmas gift. But today they make up as much as a fifth of trades, O'Hara said, and are used most often by high-frequency traders.

The surge has also been driven in part by higher-cost tech names like Apple, Google and Amazon.com Inc. At hundreds of dollars a share, 100 share orders are out of reach for many people.

Last year, around 53 percent of Google trades, 38 percent of Apple trades, and 26 percent of Amazon trades, were odd lots and were not included in the consolidated data feed, said O'Hara.

Around 4.14 billion shares of Apple, not including odd lots, changed hands last year, according to Thomson Reuters data. Apple currently trades for around $557 a share.

In the realm of high-speed electronic trading, where success is measured in micro-seconds, orders are often sliced and diced into smaller parcels so they can be sent to numerous trading locations for faster execution. So if an order of 500 shares were sliced up and all of the orders were executed, that 500 share order would not have been reported.

It is also common for high-frequency traders to use odd lots to probe for hidden liquidity, pinging different venues with single orders looking for buyers.

There is no date set for exchanges to begin reporting odd lots, but it will likely start sometime around the middle of 2013, Clark said.

While the odd lots will be added to the trade feed, they will not be last sale eligible, which means the smaller trades will not trigger short sale restrictions or trading pauses if they fall outside of a given price band.

Odd lot orders will not be added to the quote feed, meaning that only orders of 100 shares of more will be used to determine the best price available for the security, but that decision may be revisited in the future, Clark said.

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