Zeev, when a VWAP transaction is executed on VTS, ATG is the intermediary between buyer and seller - the order is "executed" only if it is matched. The match can be made between a dedicated buyer and a dedicated seller, or by a dedicated party on one side and a B/D making an open commitment to match on the other. Either way, ATG is merely a middleman pocketing a few pennies per share.
The risk you describe really does not exist, at least for ATG as an intermediary. And it is true that parties matching at the VWAP in a pre-opening session take the risk that the price will go in the wrong direction in an unknown amount as the day progresses. On the other hand, they also may benefit if the price moves in a positive direction, and, in any event, a party placing a traditional 100,000 share buy or sell order (whether as one block, or 20 blocks) runs the risk that they will sell at the low point, or buy at the high point, and worse, that MM's will take advantage of them because they become aware of the size of the order (word of mouth, you know) and nudge the execution by 1/16 or 1/8 a point per share (or more). When an index fund has no choice but to buy or sell that day into a dynamic market in order to maintain the index ratios for new cash or redeemed cash (this happens ALL THE TIME), the likliehood is that they will be skinnied, even by the best specialists trading on their behalves. That's why many choose to use an imperfect form of VWAP today. I think VTS's angle is that it provides true, anonymous and totally secured VWAP trades at a guaranteed VWAP price. Apparently, institutions and B/Ds are not only willing to trade on that basis, but appear to be eager to do so. Time will tell.
Good luck to you.
MST |
