Sep 28, 2023

September 28, 2023

What the Rise in Subdollar Stock Volume Means for Institutional Trading

Just a small handful of symbols are driving subdollar trading volumes sky-high. Here’s how recent subdollar volume trends may impact institutional trading.

Historically, trading in subdollar symbols was limited to 4-5% of market volume. In the past year, that’s risen to new all-time highs above 15% and stayed consistently in the double digits.  

While that still may feel irrelevant in terms of notional volume, in terms of shares traded, it’s become a significant trend.

Source: NYSE TAQ Data

So why is it happening?  

The Rise in Subdollar Stocks

For starters, there are many more publicly traded stocks <$1 than there used to be.  

When a stock goes public, it typically must do so at a share price of at least $4.2 That means to be an exchange-listed subdollar stock, the stock price must have fallen more than 75% from its IPO price.  

In 2022, with inflation and rising interest rates, the market fell substantially, with certain sectors being hit particularly hard and hundreds of stocks falling 75% or more in under a year, thus producing a lot of subdollar stocks.

Though stocks that continue trading under $1 typically become de-listed after a period, there are currently many symbols under $1 that are still part of the National Market System. The number of publicly traded subdollar symbols3 went from fewer than 100 in 2021 H1 to over 700 in recent months.

Source: NYSE TAQ Data, IEX Market Data

Subdollar volume is highly concentrated in a small handful of symbols

Unlike stocks above $1, there are a small handful of subdollar names with super-high ADV that generally make up around half of all marketwide subdollar trading volume. For example, in the first half of 2022, when subdollar trading was just 6.6% of market volume, the top 10 subdollar symbols represented 45% of subdollar volume, or 2.9% of all marketwide volume.  

In recent months, that consolidation trend has become even more pronounced. In August 2023, subdollar trading rose to 15.6% of all marketwide volume. Of that 15.6%, just 5 symbols made up 44% of all subdollar volume. This equates to just 5 subdollar symbols representing 6.8% of marketwide volume, a higher percentage than all the hundreds of subdollar symbols in the first half of 2022.

Source: NYSE TAQ Data

Expanding to the top 10 subdollar symbols, we see those made up 59% of August subdollar volume, which equates to 9.2% of total market volume – more than a 3x increase versus H1 2022!

Source: NYSE TAQ Data, IEX Market Data

Additionally, these super-high ADV names tend to trade mostly off-exchange. In August 2023, the top 10 subdollar symbols traded 63% of their volume off-exchange.

Measure What Matters: Trading Volume vs. Notional Value

Here’s one reason why this trend matters: the rise of subdollar trading skews any share-based market share metrics, which a lot of people use to evaluate their trading venue mix. For a venue or broker measuring market share, subdollar volume may represent nearly 15% of marketwide shares traded, a very important segment. But if you are measuring market share notionally, you would see a totally different story where subdollar names are just 0.1% of notional value traded marketwide.

As we’ve written about previously, IEX Exchange’s market share tends to be much higher in the symbols that make up major stock indices like the S&P 500 and Russell 2000. And within those indices, IEX Exchange does even better in higher-priced names.  

In other words, getting precise about measuring “the market share you really care about” as opposed to “overall market share” may be more important today than ever. What gets measured gets optimized for, so we believe it’s important to carefully design and consider which metrics are most important to one’s business objectives when examining volume trends in today’s markets.