First, isn't your concept reversed - the alternative trading systems are
replicating the block/principal/agency desks only without the other
"bundled" products (i.e., research, IPOs, et.)
What's my "concept"?
If you're suggesting that I said, anywhere, that trading desks are copying ATS', I'd really like you to show me where - a link, etc. They may react to certain competitive pressures, but the business was done over the phone and by computer far before efforts at electronic disintermediation began.
ATS' are attempting to add value to the human, buy-to-sell side desk experience, and to a certain extent, they can do so. They will never replace flesh-and-blood traders, though.
And, to the extent that the value they add can be copied, whether that means by other electronic trading firms or by human traders on desks, they will be - sooner or later.
Second, couldn't the alternative trading systems and ECNs currently in the
marketplace all be replicated.
That's a far too simple question, and misses the point altogether. If you're asking, "Could an ECN be replicated," the answer is, "Yes - easily." There are too many already, and nothing is stopping anyone from developing yet another.
Compare, though, The Island ECN versus the lowest volume ECN out there, whatever it is right now.
Sure, they're both ECNs; the question is can Island - for example - be replicated?
Hasn't the advances in telecommunications
and technology and the declining price of communications and technology assured this.
Concepts like "liquidity," "relationships," and "customer comfort," can't be emulated by any degree of "telecommunications or technology" innovation. This is why the human trader is irreplacable.
At a minimum, hasn't each new generation of product made it very
probable that transaction costs will continue to come down, as ATG
has been saying all along.
I don't know - nor care - what any particular company may or may not have been saying. I am only addressing the state of realities with regard to ATS' and, in particular, institutional customers.
With regard to transaction costs coming down, that's fairly apparent on the retail side, but on the institutional side, things are pretty flat, and have been for about 3 years. See the next section for more info.
And isn't your comment regarding "buy vs. build" the
classic example of trying to make current business processes faster and
cheaper via using technology. Isn't this the reality despite all the talk
about the advantages of technology and its ability to replace humans -
including traders.
Technology can make processes faster and cheaper. In fact, the great thing about such in the financial markets is that such technology leaves traders to concentrate on more complex - and lucrative - orders. But again, again, and again: cost is a secondary consideration to many buysiders, as is speed.
Most institutions would rather an order be handled by a human being - carefully and cautiously - and, if they can get the price they seek and have their order be treated with TLC, they'll pay a hefty price.
There's a reason why, despite the advent of direct access brokers, ECNs, online trading, and the like in the last 5-10 years, good principal desks and block positioners can and still do charge from 4 to 30 cents per share, or 3-6 hundred basis points (rough average) on a large distribution.
The reason is, they want a human mind, with its' wealth of skills and experience - not a machine and algorithms - acting as their advocate in the financial market(s).
The major US Exchanges, most ECNs and ATSs are following similar
trends that will not provide any competitive advantages.
I think that the ECNs have spurred the stock exchanges into a free-for-all to provide improved access to their liquidity, be it NYSE's Institutional Xpress, NASDAQ's planned PRIMEX Trading system, or any of the other systems proposed or underway.
What do you think
about the idea that the marketplace will become too complex and chaotic for traders or
alternative trading systems to make the "best" decision at any singular
point throughout the trading day.
I think it's an inane suggestion. Markets will never be "too complex" for traders to participate in, otherwise, traders won't participate, and there will be "no" markets!
Remember in "The Graduate," the one word a well-meaning party guest utters...intending to express his hint for the brightest career future for young Dustin Hoffman?
Well, I have three of them which, in two phrases, will express what I feel about the suggestion that markets will become "too complex" to make decisions.
One is "portal technology."
The other is "filtering."
It very much appears there is a need for an alternative to
traditional point in time trading that "integrates out" the chaotic
uncertainty and aligns more naturally with the trading styles and longer
term objectives of traders.
First of all: "it very much appears there is a need..."
It appears so, to who?
Second, with regard to "align[ing] more naturally with the trading styles and longer term objectives of traders."
What traders are you speaking of? Who is to say what "style" is "natural," and that any specific traders have "[long] term objectives"? An institutional desk traders' objectives are his customers' objectives, which could take months or minutes to put into action and might follow any of a large number of "styles."
The very definition of trader, as a negotiator and plan implementor - and not, as some would laughably have it, as a stock picker - makes this supposition absurd, to be honest.
LPS5 |
