I am not sure I understand the inquiry, but I must say it is refreshing to discuss some of the underlying concepts and perhaps their potential appeal to market participants. Not that I know much about the perspectives of the participants other than there is a ton of information published on equity transaction costs and presumably if nobody cared, there wouldn't be.
From what I have seen, transaction costs are generally described as consisting of two types:
Explicit and Implicit and within each category there are sub-elements, e.g., commission fees, spreads, market impact opportunity costs,etc. I think the statements published on ATG website on million + volume evwap days that say something like, "x amount of shares were traded in these securities with no market impact and at very low fees" fits this model. A further qualification is probably necessary as eVWAP is trying to appeal to the VWAP trading community such as those who may be considering an arrangement similar to this one madoff.com.
In this context, I think they are just making the point that if the elimination and/or reduction of certain transaction costs as traditionally defined are a concern to you, then come check our eVWAP system out. The commissions are half a penny for practical purposes under SEC approved fee schedule, Spreads there aren't any, and with respect to market impact, I think their point is that if your order is matched, the price won't move regardless of order size, e.g., 1 share or 100,000 shares.
Decimalization seems to now have turned a microscope on quote liquidity, i.e., the maximum number of shares that can be bought or sold at a price without causing the price to move. Some of the articles I have posted here have illustrated complaints by mutual/pension funds on this occurrence in the world of decimilization. Not commenting on whether the mutual funds have a valid point, just that it is something that seems to be a concern to them and, to the degree it is, a firm price for an equity, assuming the price itself is appealing, may be attractive to them. It's unclear right now whether or not no market impact in this context is something to relish yet and eVWAP volume usage will be the ultimate judge in my opinion.
This view, assuming I have articulated it well enough to be understood, or that there is some substance to be understood, is somewhat similar to how I have come to view market impact. I hate to turn to another subject I know nothing about, but physics would seem to provide an applicable conceptual model. I think of a buy or sell as a force, and the price as an object.
If you have a 100 pounds of pressure applied to an object in one direction and 100 pounds of pressure applied in the opposite direction, all things being equal, the object should not move. If there was only one buyer and seller of a security and each wished to swap the same amount of shares, then regardless of the amount shares to be traded, all things being equal, the price shouldn't move. In regular way trading, I would argue that there is a far better chance that all things won't be equal, but in eVWAP by definition it must be. To get a match, there generally must be two parties, and when the security changes hands under eVWAP, be it 1 share or a million shares, one entity will have paid the exact price another entity was willing to sell it and vise versa. At some level, this result seems to be very fair to both parties, especially since the price is set by a predetermined standard. The ultimate question is whether the price is attractive to induce balance on both sides. The elimination of a spread which is passed back as savings to the users should give a slight systematic advantage to eVWAP. Further appeal of the price might be the lack of engagement on the part of traders to obtain it, and well as other practices that might result in all things not being equal in regular way trading. |
