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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: LPS5 who wrote (8848)	3/21/2001 11:15:16 PM
From: mst2000	Read Replies (1) \| Respond to of 12617

Hi LPS5. I was reading an article the other day about eVWAP -- but first some data to set up the discussion: eVWAP, in its first generation incarnation, offers a single pre-opening matching session which ends at 9:20 a.m., matching specific orders from institutions and large block traders placed either directly into the system or through an introducing B/D, as well as two sided dealer commitments, in accordance with a matching algorythm that places priority on natural matching, and then assigns the Volume Weighted Average Price for each cross, calculated at the end of the trading day from all trades made on all exchanges the "regular way", and executes at that price shortly after the close. Elkins McSherry completed a study last summer which found, on the basis of an empirical review of a very large number of trades studied by them on behalf of institutional clients, that 83% of the time (5 of 6), the VWAP price would represent price improvement to an institutional trader trading the regular way regardless of whether that trader is buying or selling -- in other words, the traders far more often than not do NOT beat the VWAP price. As a result, the VWAP is apparently beginning to emerge as somewhat of a benchmark for best execution among institutional traders. Anyway, the article (which I believe was in Trader magazine) stated that sell-side traders like the system quite a bit, but that buy-side traders are less enamored, in that they think they can "beat the VWAP", so, by personality, they are less inclined to use a system that tags them as "average. I was wondering if you would comment upon that conclusion --do you think it is plausible? If so, why would sell side traders favor a system like eVWAP and buy side traders eschew it -- do you buy the notion that personality type plays into the equation, or is there a more technical explanation? If the average size block for a large money manager (hypothetically, like Fidelity or Barclays) is over 100,000 shares (on 100's of different stocks), often in both directions, I should think that any system that manages to fill a sizable percentage of the total order at a price that represents price improvement 83% of the time would be attractive to both buy-side and sell-side traders. Thoughts? Thanks. MST