NEW YORK (HedgeWorld.com)–The impacts that decimalization, automation and lower brokerage commissions have made on the strategies of institutional investors, both traditional and alternative, provided grist for a panel discussion of institutional block trading at a breakfast moderated by Larry Tabb, founder and chief executive of The Tabb Group.
The Oct. 25 event, co-hosted by The Tabb Group and Instinet LLC, was in large part a reaction to the precipitous decline in the size of trades on the New York Stock Exchange and Nasdaq. Stephen Austin, media relation head at Instinet, explained that average order size has declined in those markets from more than 1,400 per trade in 1997 to below 415 shares in 2004.
The impracticality of trading in blocks as small as 415 shares has driven large buy-side institutions away from the NYSE or Nasdaq to over-the-counter transactions. Or, perhaps, the departure of those institutions has changed the nature of the exchanges.
David L. Brooks, senior vice president, The Boston Company Asset Management LLC, said that he sees a “chicken and egg” scenario in this order-size decline. He invoked a golfer’s metaphor, too, saying that direct market access technology “has evolved to the point where it has become your normal tool [on the buy side of the equities market], as opposed to the weird club that usually stays in the bag.” The Boston Company has three execution-related goals: protection of order anonymity, the minimization of transaction costs and tools that “allow you to cope with this very challenging regulatory and market structure environment.”
The theme of several speakers was that the burden of transactions costs isn’t lessening–it is only shifting. Traders are saving money on brokers’ commissions but losing it again on the jaggedness of execution and unevenness of price discovery.
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