Banks and exchanges enjoy 'Trump bump' trading surge

By John McCrank

NEW YORK (Reuters) - Banks, stock exchanges and brokers enjoyed a surge in trading volumes on Wednesday after a surprise victory for Republican presidential candidate Donald Trump sent investors scrambling to reposition their portfolios.

The "Trump bump" set U.S. equity markets (.AD.US) on track for one of their highest volume days of the year as institutional and retail investors bought financial stocks and pharmaceutical companies on the expectation that a Republican-controlled government would loosen regulations governing those industries.

Private prison company Corrections Corp of America (CXW.N) also jumped, buoyed by Trump's tough talk on crime.

Global market making firm KCG said volume in its retail equities business was triple it normal amount as investors shifted in and out of positions, with a flurry of activity in exchange traded funds.

"We’re also seeing large pharma and large cap financials as very, very active issues so far today and that goes very much with the general theme of a potentially changing regulatory environment with respect to banks and with respect to medical care," Daniel Coleman, KCG’s chief executive officer said in an interview.

Volume in KCG’s algorithmic trading business was about double its normal amount and its Treasury execution business was up around two-and-a-half times its normal volume.

The surge in trading, which spanned equities, foreign exchange and bonds, was a boon for banks' trading arms, which beat forecasts in the third quarter due to volatility inspired by Britain's shock vote to leave the European Union, known as Brexit.

"Unlike Brexit which is seen as a one-off event, there is a lot more uncertainty with a Trump presidency," said Alex Manzara, vice president of institutional sales at R.J. O’Brien and Associates in Chicago

"We will likely continue to see this sort of volatility going forward. It should be a better environment for the trading business," he said.

M&A A WEAK SPOT

The S&P index of financial stocks (.SPSY) was up 4 percent, hitting its highest level since May 2008, as investors bet Trump's policies would boost inflation, keeping the Federal Reserve on track to proceed with an interest rate hike next month which would lift banks' profits.

It was not all good news for financiers. Investment bankers expected corporate bosses to put the brakes on acquisitions amid uncertainty over how Trump would navigate global trade policy and taxation.

Analysts at Goldman Sachs estimated that there could be a 20 percent to 30 percent drop in earnings for banks that focus on providing advice on mergers and acquisitions.

On bond desks, there was a huge sell-off in the $13.6 trillion U.S. Treasuries market. Trading volumes in some cases surpassed those seen the day after the Brexit vote on June 23.

On the Chicago Board of Trade, volume on the spot 10-year Treasury futures totalled 3.88 million contracts as of 1:54 p.m. ET, putting it on track for its biggest one-day trading volume since Oct. 15, 2014, when they reached over 4 million contracts.

U.S. options volume surged with about 18 million contracts changing hands by 1:30 ET (1830 UTC) at nearly twice the normal pace, per options analytics firm Trade Alert. Volume for the day is projected to hit 28 million contracts, the highest in 10 months.

If the pace of trading holds, volume for the day is projected to hit 29 million contracts, the highest in 10 months.

Foreign exchange volumes were also high on Wednesday, according to sources familiar with the matter at several top banks.

(Additional reporting by Olivia Oran, Saqib Ahmed and Richard Leong; Writing by Michael Erman. Editing by Carmel Crimmins and Andrew Hay)