Tag Archives: transaction cost analysis

Finally: Debate re High-Frequency Trading Includes A Tangible Solution

tabb forum logo Excerpt courtesy of TABB Forums April 21 submission by Chris Sparrow, CEO of “Market Data Authority” a consultancy that provides guidance within the areas of equities market structure, transaction cost analysis and “best execution.”

MarketsMuse Editor note:  below snippet is a good preview to the most recent “short-form white paper” written by Mr. Sparrow in connection with the ongoing brouhaha re high-frequency trading aka HFT. The submission itself inspired a broad assortment of comments from industry experts..and, having been considered a “market structure expert” in a prior life, MarketsMuse editor says “overlook the ‘techno talk’, its worth hitting ‘read more.’

“Eliminating Unfairness: Creating a Protocol For Synchronized Period Trading”

The goal of this piece is to describe at a high level a protocol that could be introduced to allow for a multi-venue system operating synchronized batch auctions. The motivation for this protocol is to eliminate any advantage from the asymmetric distribution of order book information – i.e., trade and quote updates. No attempt is undertaken to control other types of information that may be relevant to trading.

The protocol should allow for competition of trading venues and not discriminate against any type of market participant. Further, the protocol is suggested only as an option that could be used by venues that want to participate.

A strong motivation for creating the protocol is the perceived “unfairness” that is present in the existing market structure, where some participants may be able to get faster access to trade and quote information than others. The result has been a perceived erosion of confidence in the equity markets. Other externalities that exist in the current system include the need to store vast amounts of data generated from continuous trading and a technological arms race.

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Vanguard’s CIO Gus Sauter: Agency Execution is our Preference

  Courtesy of  Gregory Bresiger.. Excerpts from Part 3 of a series of interviews with Vanguard Chief Investment Officer Gus Sauter

How does Vanguard Funds,’ famous for Fred Mertz like trading economy, go about finding the lowest possible costs? The process is detailed in Part Three of Traders Magazine’s Q&A with Vanguard chief investment officer Gus Sauter.

Traders Magazine: Why have you and your company launched this campaign to change what you perceive as an overpriced market structure?
Gus Sauter: I think transaction costs are surprisingly high.

Traders Magazine: You said in an interview that “a large part of indexing is actually being a trader.”  Does mean that, as with most traders, you’re using algos and using agency traders like ITG or Instinet. How does it work out for Vanguard?
Gus Sauter: We do most of our trading through agency brokerage. We will use brokers’ algos as well if we think that is appropriate for trading. We monitor the transaction costs on a broker by broker basis.

Traders Magazine: Even index fund managers need the same trading skills as though who are actively managing funds?
Gus Sauter: Yes, it really is important that our portfolio managers understand how to trade, how to execute, how to find the right strategies and venues. Should it be an algo or something they are using a dark pool.

Traders Magazine: Higher than most investors think?
Gus Sauter: Yes, a lot of people don’t realize how much money you could spend on transactions if you’re not careful. In other words, we trade hundreds of billions of dollars a year. If you lose , just a half a percent, you’re losing a billion dollars.

Traders Magazine: The implication of what you’re saying is the industry, especially in good times, is incredibly sloppy. Is it because it is other people’s money?
Gus Sauter: Yea, hard for me to tell you. Historically, people have never had respect for the magnitude of transaction costs. They really felt they provided so much alpha in their actively managed funds that they really didn’t have to worry about transaction costs.

Traders Magazine: Not over the past decade…
Gus Sauter: Yes, in a lower return environment people really recognize how much costs are.  And they are devoting more time to how they trade.


Full article: http://www.tradersmagazine.com/news/vanguard-sauter-brokers-capital-110393-1.html?zkPrintable=true