Friday, 21 April 2017

Reg SHO: 2017 Q1 Fails-To-Deliver = $131.95 billion

This is a continuing story that no-one has ever cared about. I continue to meander around the subject as I can't help but slow down and strain my neck as I pass the car crash that is NMS's Reg SHO and its Fails-To-Deliver (FTD).

I've previously covered the topic in June 2016: "Billions of shares fail to settle - every month - you and I don't care."

I know you don't care. I can hardly blame you as the old back office and settlement details rarely excite. Us HFT types though, we get by only if we pay attention to the details. For my own curiosity I thought I'd check out what has been happening since mid 2016. After all, it is after 5PM on a Friday here in Australia - so, why not?

Firstly, things don't quite seem so bad as the FTD share count dropped in 2016 to only a wee forty five billion shares - hardly noticeable:


Fails-To-Deliver

Share count


2014 56,809,415,216
2015 58,823,475,247
2016 45,046,004,655


Q1 2017 11,694,519,023

2017 seems to be heading in roughly the same direction as 2016. If you squint and hold your head on the correct angle, there may be a down trend emerging in the following monthly chart:

Reg SHO Monthly FTD - data sourced from SEC
(click to enlarge)
Still, having around 4.5B shares per month failing to deliver for the last couple of months is not the happiest of circumstances. Let's dig into the 2017 Q1 data and pretend we care for a moment or two.

So, the Q1 FTD share count is 11,694,519,023 fails. Who would miss such a small number of shares? To provide some perspective, IEX handled around 2B shares of lit volume in the same period, so it is more then five times IEX's lit volume. You'd think someone would care, but you'd be wrong.

What's the dollar value? There are a couple of hundred thousand lines of stock and if we multiply quantity by price in the SEC's SHO files, we arrive at a grand total of:

$USD 131,947,723,560

Which is slightly wrong. The figure is actually marginally higher. When we dig into the data we see around 5,000 of the more than 280,000 daily stock lines have no value and the SEC file simply reports a "." for the stock price for the symbol.

Let's look at one such line:
20170223  922101100  VPOR  2,231,979  VAPOR GROUP, INC. COMMON STOCK  .
Here we see 2.2M shares of VPOR failed to deliver with a price of "." VPOR seems to have gone through a name change and has become Newgen Concepts Inc with the same OTC stock code:

(click to enlarge)
The main feature of interest is that the share price was less than one cent and closed at $0.003. In the picture above, Feb 23 is the second spike in volume traded in that patch of heavier trading towards the end of the month. So, the FTD was worth around $6,858 but we record it as zero due to the file's pricing issue.

Those 5000+ lines represent quite a few low priced shares. Of the 11.7B total FTD shares, 5.373B are low priced and generally OTC. 6.321B share have prices above 0.01 and are thus are properly registered in the SEC's files.

That is, the $US 131.9B of FTD value represents 6.321B shares with an average price of $20.87.

Let's look at the stats on those 6.321B shares in terms of daily value per stock of FTD:


Count 274,673
Average 480,381.12
Std Dev 5,527,080.22
IQR 74,255.04
Min 0.01
Max 1,352,098,833.75


Percentiles
0.0% 0.01
1.0% 14.10
2.5% 40.37
5.0% 108.67
10.0% 373.36
25.0% 2,171.52
50.0% 12,098.00
75.0% 76,426.56
90.0% 572,307.98
95.0% 1,642,421.79
97.5% 3,511,242.92
99.0% 7,573,721.26
100.0% 1,352,098,833.75


The distribution is fairly skewed with the average daily line for a stock being $480,381 but the median being $12,098. Here is a picture of the distribution on a log scale so you can see the tails more clearly:
(click to enlarge)
You can see the top 10% of FTD lines are over $500k, 80% are over $1,000, and 50% are over $10k.

The biggest daily line was for 1.352B of SPY and here are the top fifty lines by value:

S.DATE SYMBOL QTY (FAILS) DESCRIPTION PRICE
VALUE
20170322 SPY 5,784,875 SPDR S&P 500 ETF TR 233.73
1,352,098,834
20170223 QQQ 4,895,964 POWERSHARES QQQ TR UNIT SER-1 130.50
638,923,302
20170321 QQQ 4,774,824 POWERSHARES QQQ TR UNIT SER-1 131.81
629,369,551
20170124 SPY 2,595,083 SPDR S&P 500 ETF TR 226.15
586,878,020
20170213 IWM 3,657,902 ISHARES RUSSELL 2000 ETF 137.94
504,571,002
20170125 SPY 2,145,917 SPDR S&P 500 ETF TR 227.60
488,410,709
20170323 SPY 1,746,066 SPDR S&P 500 ETF TR 234.28
409,068,342
20170331 SPY 1,612,840 SPDR S&P 500 ETF TR 236.29
381,097,964
20170206 SPY 1,584,108 SPDR S&P 500 ETF TR 229.34
363,299,329
20170209 XLP 6,789,190 CONSUMER STAPLES SECTOR SPDR 53.36
362,271,178
20170125 TLT 2,973,254 ISHARES BARCLAYS 20+ YEAR TREA 120.31
357,712,189
20170208 XLP 6,401,409 CONSUMER STAPLES SECTOR SPDR 53.14
340,170,874
20170322 QQQ 2,482,350 POWERSHARES QQQ TR UNIT SER-1 129.81
322,233,854
20170106 XLU 6,583,463 UTILITIES SECTOR SPDR 48.68
320,482,979
20170215 SPY 1,288,863 SPDR S&P 500 ETF TR 233.70
301,207,283
20170217 QQQ 2,132,456 POWERSHARES QQQ TR UNIT SER-1 129.25
275,619,938
20170125 QQQ 2,186,774 POWERSHARES QQQ TR UNIT SER-1 124.18
271,553,595
20170221 QQQ 2,091,016 POWERSHARES QQQ TR UNIT SER-1 129.81
271,434,787
20170210 XLP 4,985,542 CONSUMER STAPLES SECTOR SPDR 53.58
267,125,340
20170109 SPY 1,166,234 SPDR S&P 500 ETF TR 227.21
264,980,027
20170216 SPY 1,125,050 SPDR S&P 500 ETF TR 234.92
264,296,746
20170321 XLF 10,487,104 FINANCIAL SECTOR SPDR 24.25
254,312,272
20170112 TLT 2,018,438 ISHARES BARCLAYS 20+ YEAR TREA 122.16
246,572,386
20170315 SPY 1,016,746 SPDR S&P 500 ETF TR 236.90
240,867,127
20170213 XLP 4,434,265 CONSUMER STAPLES SECTOR SPDR 53.62
237,765,289
20170223 IWM 1,700,034 ISHARES RUSSELL 2000 ETF 139.58
237,290,746
20170310 HYG 2,612,713 ISHARES TR 86.33
225,555,513
20170313 BWXT 4,855,127 BWX TECHNOLOGIES INC COM STK ( 46.12
223,918,457
20170207 SPY 964,292 SPDR S&P 500 ETF TR 228.93
220,755,368
20170301 ENB 5,206,097 ENBRIDGE INC 41.85
217,875,159
20170112 SPY 944,340 SPDR S&P 500 ETF TR 227.10
214,459,614
20170321 KRE 3,737,397 SPDR S&P REGIONAL BANKING ETF 55.73
208,285,135
20170320 KRE 3,639,657 SPDR S&P REGIONAL BANKING ETF 56.54
205,786,207
20170227 IWM 1,461,923 ISHARES RUSSELL 2000 ETF 138.65
202,695,624
20170315 HYG 2,276,326 ISHARES TR 86.11
196,014,432
20170207 BIVV 4,406,429 BIOVERATIV INC OM 42.83
188,727,354
20170321 XLU 3,588,888 UTILITIES SECTOR SPDR 50.89
182,638,510
20170202 ACWI 2,935,053 ISHARES MSCI ACWI ETF 60.92
178,803,429
20170228 ENB 4,265,507 ENBRIDGE INC 41.59
177,402,436
20170109 QQQ 1,413,347 POWERSHARES QQQ TR UNIT SER-1 121.93
172,329,400
20170316 IWM 1,249,139 ISHARES RUSSELL 2000 ETF 137.73
172,043,914
20170117 CLNS 11,417,165 COLONY NORTHSTAR INC CL A COM 14.63
167,033,124
20170131 TLT 1,394,371 ISHARES BARCLAYS 20+ YEAR TREA 119.27
166,306,629
20170201 TLT 1,361,902 ISHARES BARCLAYS 20+ YEAR TREA 120.10
163,564,430
20170126 EWU 5,005,998 ISHS MSCI UTD KINGDOM ETF 31.77


It seems unusual to me that QQQ and SPY would be so prone to FTD. By any reasoning that is a lot of value in those stock lines that are failing proper settlement. However, the basic tenet of Reg SHO is that you and I don't care.

What's a few hundred billion dollars a year between friends? T+2 can only help ;-) Nothing to see here. Move right along.

Happy trading,

--Matt.

_______
The SEC's Reg SHO FAQ & keypoints may be reached from the footnotes of my previous meandering: "Billions of shares fail to settle - every month - you and I don't care."

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