By Edward Krudy
NEW YORK, March 23 (Reuters) - Citigroup's reverse share-split could lead to a sharp reduction in U.S. equity trading volume, hurting the profitability of exchanges and traders.
The reverse stock split will see 10 of Citigroup's shares combined into one and is set for after the close of trading on May 6.
The bank is the most actively traded stock in the United States and has a massive 29 billion shares outstanding thanks to equity issued during the financial crisis. That is nine times more than the average for Dow industrial stocks.
Analysts at Birinyi Associates estimate the split could decrease volume on the New York Stock Exchange by 11 percent, affecting the calculus for those who use volume as a key component in understanding market sentiment.
'Volume will be declining because of this structural issue and from an investment standpoint it's meaningless,' said Jeff Rubin, market strategist at Birinyi Associates in Westport, Connecticut.
The average daily trading volume in Citi's stock over the last 50 days amounts to 509 million shares. Birinyi says the trading in Citi stock so far this year has ranged from a low of 6 percent to a high of 33 percent of NYSE volume.
Rosenblatt Securities says the reverse split will impact trading venues and high-frequency traders, who trade large volumes of cheaply priced Citi stock for attractive spreads and rebates from exchanges.
After the reverse split the shares outstanding will be cut to about to 2.9 billion -- roughly in line with the average for Dow 30 stocks -- while the price will jump to more than $40.
That would make Citi less attractive to high frequency traders, other electronic market-makers, and retail day traders, says Rosenblatt. It would also mean institutions would need to move less shares to make large bets.
Based on 2010 data, Rosenblatt says the reverse split could mean a loss of 1.8 billion in share volume per month for Nasdaq and 3.4 billion for New York Stocks Exchange.
That translates into a quarterly revenue loss of about $3.7 million for the NYSE and $1.4 million for Nasdaq, according to Rosenblatt. Keywords: US MARKETS/CITI REVERSE SPLIT (edward.krudy@thomsonreuters.com; Tel: +1 646-223-6314; Reuters Messaging: edward.krudy@reuters.com@reuters.net; Editing by Andrew Hay) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, March 23 (Reuters) - Citigroup's reverse share-split could lead to a sharp reduction in U.S. equity trading volume, hurting the profitability of exchanges and traders.
The reverse stock split will see 10 of Citigroup's shares combined into one and is set for after the close of trading on May 6.
The bank is the most actively traded stock in the United States and has a massive 29 billion shares outstanding thanks to equity issued during the financial crisis. That is nine times more than the average for Dow industrial stocks.
Analysts at Birinyi Associates estimate the split could decrease volume on the New York Stock Exchange by 11 percent, affecting the calculus for those who use volume as a key component in understanding market sentiment.
'Volume will be declining because of this structural issue and from an investment standpoint it's meaningless,' said Jeff Rubin, market strategist at Birinyi Associates in Westport, Connecticut.
The average daily trading volume in Citi's stock over the last 50 days amounts to 509 million shares. Birinyi says the trading in Citi stock so far this year has ranged from a low of 6 percent to a high of 33 percent of NYSE volume.
Rosenblatt Securities says the reverse split will impact trading venues and high-frequency traders, who trade large volumes of cheaply priced Citi stock for attractive spreads and rebates from exchanges.
After the reverse split the shares outstanding will be cut to about to 2.9 billion -- roughly in line with the average for Dow 30 stocks -- while the price will jump to more than $40.
That would make Citi less attractive to high frequency traders, other electronic market-makers, and retail day traders, says Rosenblatt. It would also mean institutions would need to move less shares to make large bets.
Based on 2010 data, Rosenblatt says the reverse split could mean a loss of 1.8 billion in share volume per month for Nasdaq and 3.4 billion for New York Stocks Exchange.
That translates into a quarterly revenue loss of about $3.7 million for the NYSE and $1.4 million for Nasdaq, according to Rosenblatt. Keywords: US MARKETS/CITI REVERSE SPLIT (edward.krudy@thomsonreuters.com; Tel: +1 646-223-6314; Reuters Messaging: edward.krudy@reuters.com@reuters.net; Editing by Andrew Hay) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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