Humble Responses:
1. I have heard from those whose own diligence I respect that B/D's are expected to pay ATG 0.075 to 0.01 per share to buy VWAP shares on the commitment side - which they can then presumably sell to their customers for an additional spread. The lower profit margin is offset by the increased liquidity. I think the specifics on this will become clearer as ATG gets closer to July.
2. Responses:
>>Optimark are not fools, they include the founder on Instinet. <<
They are not fools - all I am saying is that they have a complex matching algorythm with a more "call" oriented system. It is apples and oranges and less user friendly than VTS, which involves a single decision that even an institutional money manager can make, and their matching ratios have been disappointing. Lupien is an innovator -- he and Rittereiser were CEO and COO of Instinet, respectively - they know each other well, and I doubt Lupien underestimates Rittereiser the way that you seem to.
>>And forget "academic studies" It's all bs until it's proven. ANY institution will try a system if they think it might save money and that is what the status is as we speak. Anybody ever hear of the Hiesenberg uncertainty principle? Well it applies here since if you get enough people trying to place orders to beat the VWAP, well then they effect the VWAP itself. << Institutions will try VTS. At what volumes will not be known until live operations begin. The possibility of price manipulation has been an SEC concern - the Rule amendment approval theorizes that if VTS garners more than 20% of the market in any single stock, the price of that stock might be subject to manipulation to affect VWAP results - that concern is actually stated on the face of the Reg 237 approval. But don't you think the nature of the concern reflects an assessment by the SEC that VWAP will be popular enough to actually generate that level of volume given current instituitonal practices in trading. And the PHLX study you call BS (without reading it I presume) actually tracked the executions of seven large institutions, comparing historical trading data to historically established VWAP prices in the same trades to arrive at the 8-12 basis point difference - you should read the paper before you trash it - you might actually learn something.
>>BTW, for the uninitiated, VWAP is not a new term, good institutions demand and good BD's deliver at or below the VWAP when buying and above it when selling (or selling short in our case). As I said earlier, anybody can hire a buy side broker for 1 cent and they deliver all day long all year long. << The VWAP you refer to lacks anonymity, the single largest factor in why B/D synthetic VWAP loses the 8-12 basis points -- MM's can't help but gouge an institution when they know they are buying and selling -- it is in their nature. And index funds, hedge funds and many other funds do not buy or sell on news - a good percentage of the trading is process driven and intersects with retail buyers trading into news and hype, which is why they seek anonymity and VWAP executions in the first place. Institutions want to be outside of the normal order flow, and its subtle manipulations, whenever possible.
I personally believe that the volume of stock trading in the USA alone is more than adequate to make more than one ATS profitable. As Carl Sagan would say ". . . billions and billions . . . ". It does not take a large percentage of that total (less than 1% really) to make a few hundred million a year. I do not think ATG is the be all and end all, but you must admit they are in the right place at the right time -- does that not count for anything in your analysis?
MST |
