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Ramifications of Citi's Reverse Split

Citibank
Oliver Quillia for cnbc.com
Citibank

This morning, Citigroup announced a 1-for-10 reverse stock split, effective May 9. As with all reverse splits, the bank’s action increases the price of its shares, but decreases the number of shares outstanding.

As our Bob Pisani has reported before, shares of Citi have been a magnet for high trading activity because of its great liquidity and the exchange rebates to traders.

Citigroup is consistently the most actively-traded stock on the New York Stock Exchange, often accounting for roughly 10% of volumes for all NYSE-listed stocks. On typical days, Citigroup trades over 450 million-500 million shares (on some days the stock can even trade upwards of 600 million-800 million shares). That compares to the average 4.7 billion shares that are traded daily on the NYSE consolidated tape.

The reverse stock split will reduce trading volumes in the stock since the number of shares outstanding will drop. Citi’s higher stock price will also make it less attractive to traders who are trading the stock primarily for the rebate.

The exact impact on trading activity remains to be seen, but it wouldn’t be surprising if total NYSE consolidate tape volumes are reduced by upwards of 300-400 million shares per day to potentially somewhere around 4.2 billion-4.3 billion shares as a result of Citi’s reverse stock split. That also comes as trading volumes have been declining over the past couple of years.


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