Hello Rob,
Re: [E]xecut[tions]...with NO MARKET IMPACT
I've been lurking, reading the posts here for awhile, only because the eVWAP ATS captured my interest when I first heard about it some time ago. I have no opinion or comment on the publicly traded technology company that backs, owns, or to whatever extent is involved with the trading system.
It's a compelling offering, though I personally have some reservations about all the implications of off-market trading systems. We can talk about that another time though, although some of my previous posts, including one answering a question by mst2000 on "The Final Frontier" thread addressed it.
At this time, though, I wanted to address something I've seen posted a few times here and give my take on it. A few posts have highlighted, apparently relishing the concept, that the system "eliminates market impact."
I'd first add that semantically, it is debatable whether market impact can ever actually be "eliminated." In the same way that Heisenberg postulated that by merely observing an experiment you become a part of it and therefore change the outcome, there is a school of thought that says that by merely executing a trade, some impact is realized. I disagree, for the most part, with that assertion.
In and of itself, reducing market impact is a practice toward heightening buyside investment performance and, in the extreme, limiting/eliminating "runaways" (stocks that, either because of the attention given to them or their thin floats, take off when large buyers accumulate them). It is not inaccurate to say that the goal of sell-side entities and certain ATS' like eVWAP would be to minimize market impact.
But on professional trading desks - when executing block trades - some amount of market impact is welcome and in fact a positive sign, with the basic premise being this: the presence of impact hints at the presence of other market participants watching the issue. Obliquely stated, competition for an issue attests, to some extent, to (a) some ready market for the security, which can of course change; and - less important to the sell-side trader, and inconclusive but worthy of reporting back to ones' buyside client - (b) the hint of legitimacy of the buyside managers' value or growth expectations for the company. [Or, as may be borne out later, to a whole lot of institutional market participants having being wrong about the issue in question the same time! ;-)]
Simply stated: if buyside managers make liquidity, as measured by market impact, the primary determinant of the order in which lists of stocks given to trading desks are executed for them...they'll effectively wind up loading, or rebalancing, their portfolio with issues that no one else wants!
The concept is roughly equivalent to something an internet auction addict told me the other day: when bidding on expensive items, such as luxury watches, it's often that the validity of the item (vs. look-alike fakes) can be revealed not by the bid prices of the issues, but by the number and aggressiveness of the bidders.
LPS5 |
