Auric:
An ECN is really nothing more than a Limit Order Book. ECN's do not compete with VTS or ATG's other systems - they compete with the NYSE's and NASDAQ's existing order flow systems and will be overwhelmed when the NYSE and NASDAQ take on the challenge of creating a better public limit order book, which is only a matter of time - 1 or 2 years at most - that is why most experts do not think ECNs will be viable 5-10 years from now. Already, ECNs are hampered by the fact that they cannot execute an otherwise matched trade within their internal systems if another more favorable market exists (for example, through a floor specialist). Once the NYSE and NASDAQ have completed their review of all limit order books in existence, and have decided which technology they want to work off of, a few incumbents will continue to exist and the rest will be obliterated. But ATS systems will largely be unaffected, because of the derivative pricing and alternative pathways they offer.
That you continue to use the proliferation of ECNs as a basis for arguing against ATG's VTS system is simply a reflection of your profound ignorance of the most basic aspects of the two types of system -- and that you favor the ECN's as the more likely to survive is a product of your bias against ATG. ATG offers through VTS an entirely different pathway to executing trades which cannot be matched by the NYSE and NASDAQ within the current framework of their trading regimes, which are based on price and volume revelation, and cannot provide for complete anonymity by the very nature of the price revelation inherent within them, and the human intervention that is absolutely required to make them work from a trade execution and clearance perspective.
And your comment that you "beat VWAP" underscores the extent of your ignorance. One doesn't "beat VWAP" you idiot - VWAP is a pricing standard. Sometimes, institutional traders attempt to "achieve VWAP" by design (by time-slicing trades), but the reality is that all existing systems and trade methodologies fail to do that precisely. Supposedly 8% of the market trades in a VWAP mode - they are trying to disguise their presence in the market and create an average, homogenized price, through time slicing. VTS is the only VWAP system which offers true anonymity -- at their annual meeting, Fred asserted that no other trading system of any kind (outcry, electronic, etc.) offers complete anonymity with a guarantied absence of human intervention -- through the use of human employees to clear executions, etc., other systems allow the market to find out that the institutional counterparty is there, in what volume, and often reveal to the market exactly who it is. ATG offers a truly alternative pathway to execution at a universally accepted derivative pricing standard that takes all the incentive out of front-running. And very soon, they will offer the ability to trade anonymously through VTS at the closing price of the day (called "Market-on-Close"), taking away from specialists and market makers the ability to profit off the knowledge that an institution is placing a buy or sell order at the closing price (another common, standardized trading technique for institutional executions that is regularly manipulated by specialist and market makers to the disadvantage of the institutional trading party). Parties making "market-on-close" orders through VTS will be unknown to the market and will be executing their orders through somebody other than a specialist who stands to profit by raising the price between the time a market-on-close order is placed and the market closes.
When you (Auric) trade stocks, I seriously doubt you are attempting to achieve a volume weighted average price, just the best price you can obtain. And to hear you brag about it, you always get the most favorable executions, indeed, I assume that you are never wrong in your timing (well, never more than 1% of the time - LOL). Even though traders better than you (yes, they exist) will tell institutions that they can get better executions, institutions nevertheless place VWAP trades a significant percentage of the time. The reason for that is that they know, from years of experience, that the traders are full of it, that the VWAP pricing is unassailable by their stockholders or participants, and under ERISA, and that attempts to time trades often blow up on them, because of front running and because of plain old bad timing. In fact, many institutions who now pay as much as $.05 per share for trading large blocks at a synthetic VWAP will save huge amounts of money trading over VTS, which will not only cost them less but will also offer a better, more precise and anonymous VWAP execution.
You just don't get it. Institutions want to execute at a true VWAP because they recognize over the long haul, it will save them money. Using your personal trading results as a measure is like saying that, because a few players can win money at a casino over a one week period, or even regularly, we have proof that players have and can utilize to their beneift an advantage over the house (when exactly the opposite is true). The truth is that anybody (even an unskilled player) can get lucky at a table over a 3-day weekend or even over a longer period, and that skilled players, with excellent money management skills and other skills (the ability to count cards for example) can actually get an advantage over the house. But when you look at everybody who stays and plays for months and years on end, when you look at the law of averages as it plays out over a period of years for everybody doing it, the house percentage that favors the casino will manifest itself in numbers that are staggering. It is no different in the stock market -- an 8 to 12 basis point savings over a 2-3 year period for a large institution means hundreds of millions of dollars. If you think they (the institutional constitutency of ATG) do not recognize the problem, the cost, and the solution, then you are even more ignorant that you have been letting on.
You are missing this one completely, Auric -- completely. You may accuse me of being in love with the company, which is partly true at this point, but my love is not just a product of greed and wishful thinking, but by the revelation, after really trying to understand this, that these guys are onto something big, and that the biggest institutions in the market they are attacking (the NYSE, NASDAQ, etc.) have been slow to catch on, which creates the ideal alchemy for a successful company. Whereas I think your bias against ATG is clearly rooted in just that -- greed and wishful thinking.
MST |
