Why passive activism is the now the biggest game in town

One of the biggest ever days of equity trading reveals how the rise and proliferation of index tracking funds has reshaped the structure of global markets.

Jonathan ShapiroSenior reporter

Updated Dec 2, 2021 – 11.15am,first published at 10.12am

Save

Share

There was plenty going on in global sharemarkets on Tuesday as November closed out. A new virus was creating anxiety, while the US Federal Reserve was preparing a dramatic messaging pivot.

But one of the largest trading days in living memory had little to do with either of those unannounced events.

Instead, it was a mammoth day of index rebalancing that led to over a trillion dollars of notional trades in the US and more than a third of that volume in Asian markets.

Index tracking funds and exchange traded funds that also track indices tend to conduct their business near or at the close of the day and in the Australian session, a large drop in the S&P/ASX 200 at the match was evident of this enormous day of index related rebalancing (that preceded any Fed announcement.)

In fact, as a proxy for the rise of index tracking funds, the share of volume of trading that occurs at the close has more than doubled over the last decade from 10 to over 20 per cent.

UBS Global head of index analytics David Rabinowitz explained that on Tuesday there was about $50 billion of additional liquidity in Asian markets as index tracking funds sought to get set in the stocks they needed and sold the ones they didn’t

We got smashed last 4 days.. did we drop out of any indexes or ETF?