November 10, 2020 | Stamford, CT USA — Amid this year’s historic surge in trading volume and volatility, U.S. capital markets responded as they are expected to — by efficiently bringing buyers and sellers together. That accomplishment is a testament to the resiliency of a market structure that shined during perhaps its biggest test. 

Over the past several months, Greenwich Associates examined dozens of data sets and conducted proprietary research to quantify the impact of the COVID-19 pandemic and to assess how markets and market structure performed. The result is the issuance of U.S. Capital Markets Performance During COVID - a new series of four reports covering 1) Equities and options, 2) Fixed income (U.S. interest rates and credit), 3) Global interest-rate derivatives, and 4) Foreign exchange.

The initial report in the series, U.S. Capital Markets During COVID: Equities, quantifies the sheer magnitude of the COVID-19 crisis in U.S. equities and options. In the first half of 2020, U.S. markets experienced staggering levels of trading volume and volatility, including the second-highest U.S. equities volume day on record, the highest VIX in history and a surge to 662 million OCC cleared options contracts in March 2020—a 50% spike from March 2019 volume.

At the height of the volume and volatility, the market structure demonstrated its resiliency. The sharp downside corrections in March triggered safeguards such as market-wide circuit breakers, the Limit Up-Limit Down mechanism and the alternative uptick rule—in some cases repeatedly. 

“All functioned as designed, and trading venues and market participants were able to resume trading in a smooth and efficient manner,” says Shane Swanson, Senior Analyst for Greenwich Associates Market Structure and Technology and co-author of the report.

Equally as important was the efficient functioning of market data systems. These data feeds are the lifeblood of U.S. equity trading. Detailed analysis shows that the securities information processors (SIPs), which much of the public uses for their trading, handled the elevated volumes and volatility of 1H 2020 admirably, maintaining remarkably tight performance bands even during the heights of market volume and volatility.

The report presents the results of deeper analysis into off-exchange trading and other aspects of U.S. equity and options market structure during the crisis. Across the board, these results show that market structure performance met or exceeded expectations during the crisis. 

“Although prices in the market experienced significant movement, these price shifts were a response to fundamental pressures from market-moving forces rather than internal miscues of the market systems themselves,” says Ken Monahan, Senior Analyst for Greenwich Associates Market Structure and Technology and co-author. “Indeed, rather than witnessing significant dislocations, the markets responded admirably to the unknowns of outside pressures caused by the COVID-19 crisis.”