It appears that as long as the stock is liquid and there's plenty of time for execution, time-slicing just makes it EASIER for the trading desk.
This is true. And, as I've also mentioned, because of the high degree of desk involvement in executing a large order at or near the VWAP, such trades are more expensive. The expense, and/or time, makes for a cost-benefit analysis whereby some buyside managers say, "just time slice it" or, "do your best."
However, as I've also noted, there are a good number of buysiders for whom the knowledge that their large orders are being sent off to sit in a server somewhere will not be welcome, and it is the role of smaller, up-and-coming firms to grab their business by saying, "I care enough about earning your business that I will handle your order and execute it manually as if it were my own." For those customers, alternative trading systems of this sort will simply not be good enough. Others will say, "Great - sit it in a server, do it yourself, whatever - just hit the number within x basis points, and I'm happy."
That is my point. It meets the needs of some, and falls short of others'.
Other electronic trading systems - including ECNs, certain crossing systems, and the like - have garnered large retail favor and failed to generate similar institutional attention because, quite simply, the processes are far more complex and often predicated upon relationships.
This is why, as over the past two years, I've repeatedly been asked by electronic trading system executives, sometimes wearily, "LPS5, why does the XYZ Fund family pay ABC Trading $.05/share instead using our automated system that costs a mere $.01/share?"
Because they don't know you. Who are you, to them?
Because they know that in institutional brokerage and block trading, the old adage is, "You get what you pay for and less." No, it's not always true...but is true enough to be wary.
Because they aren't convinced that servers and algorithms have the network and and provide the minute-to-minute attention that human beings can, particularly those who are well-positioned in the information flow of an issue or types of issues.
Because they know that the trading desk can trade principally - providing capital - to get a block done or faciliate a trade where there is no present natural match.
Because electronic systems don't remember your name, don't know what other positions you have or have been interested in or might be working, don't ask about your kids' little league team or gymnastics classes.
And because trading systems do not yet, and may never be able to, provide the flexibility that directed brokerage, soft dollar, layoffs, step-outs, recapture, and other crucial institutional business practices do.
(This, IMO, is one of the "next frontiers" for electronic trading systems, specifically those looking to earn the business of financial institutions.)
Again, that's not to say that there isn't room in the business for a trading system of this type. I only mean to provide a realistic view of both the potential and limitations for this product from a real-world, traders' point of view.
Thank you for your posts.
You're very welcome.
LPS5 |
