Trading Analysis - 7th Dec 2018


9 December 2018

End of Day

Following the 7.15am RNS announcement of the LSE levied fine the SP was marked down rapidly on opening. As can be seen the selling was minimal and the immediate and strong buying returned the advertised Bid and Ask close to the previous day's closing levels within 20 minutes

There were a couple of oscillations before 10am but trading balance was essentially maintained despite a period of very tight trading just before 9am. The first of what appear I believe are 3 triplets for the day was observed at 9:24am. This was a 250K trade at 41.25p, followed 11 seconds later by a duplicate pair of 500K trades at 41.10p, as shown on the london stock exchange website:

Again trading continues with what appears to be a good balance, again leading to a period of very tight trading around noon. Yet again there appears to be a triplet structure observed around 12:00 - first a single 250K trade at 41.6p and then 33 seconds later a pair of 250K trades at 41.5p.

Buying clearly remains strong in the afternoon - two clearly separated trading bands are observed after 1pm. At 2:51pm there is another set of 250K trades - again 250K at 41.25p followed 15 seconds later by another 250K trade at 41.1p - the exact same prices as observed in the first triplet.

Understanding these combined trades is essential to understanding the true balance of trades for the day.

Unlike the triplets previously observed in the late stages of the First Island selldown these combined trades do not appear to be timed and sized to meet MM demand for shares due to Buys accumulated over the day. For example, prior to the first triplet the nett excess of Buys was only 210K - which could easily be accommodated by MMs.

The first trade in each triplet is always the higher priced trade - I believe this to be a Buy, which is then rapidly followed on each occasion by a Sell, and Inter-MM transfer to the specific requiring Market Maker (from MM2 to MM1). We might call this structure a Buy+Sell Triplet - the first one is diagrammed below, with the order of the trades shown by the circled numeric labels.

The large sells from the tame seller, are in this instance in immediate response to a significant buy - the MMs do not wait for the Buys to accumulate over the day before dropping in the Sells from the tame seller. This immediate response means that the price difference between the Buy price and the Sell prices can be quite small - just as it is for something like a Bed & ISA transaction - Market Maker 1 does not need to worry about the risk of the market moving against them in between selling to the buyer and buying from their source - as the time differences between those trades can be measured in seconds.

The trades marked yellow in the chart above are therefore believed to be Buys, despite 2 out of 3 of them appearing below the accumulation-distribution line. As explained these are rapidly offset by Sells of similarly large amounts. With one Sell and one Buy in each triplet, plus a null effect inter-MM transfer there is generally no impact on the nett MM trading position for the day (the first triplet has a Buy of 250K but Sells of 500K so the MMs get an extra 250K shares for their pot).

With the triplets interpreted as described the nett trading position for the day is as shown in the chart, ending with an excess of 600K more Buys than Sells - not extreme by any means, and in fact in line with previous days behaviour. This however extends the effective short position that the MMs are building up and at some point they will have to find the c. 6.8M shares they are currently short of:-

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