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June 24, 2016 at 03:56 PM
There were many dramatic developments during market trading on Friday following the surprise vote in the U.K. to end membership in the EU. In the midst of it all, the robo-advisor Betterment decided to delay the start of trading for more than two hours.
RIABiz reported that trading at Betterment didn’t commence until noon, which Betterment spokesman Joe Ziemer later confirmed to ThinkAdvisor in an email. That’s 2-1/2 hours after the stock market opened in the U.S.
“We always avoid the opening and closing and this was an extension of that to serve in the best interest of clients,” wrote Ziemer. (Betterment never allows trading in the first half-hour of any trading day, which is disclosed in agreements with clients, according to Ziemer.)
“The right thing to do for our customers, both retail and institutional, was to wait and see how market conditions evolve during this extraordinary event,” wrote Ziemer. “As soon as we got comfortable that bid-ask spreads returned to acceptable levels, we resumed normal activity. We are always prudent with our customers’ execution, and during extraordinary events, we are extraordinarily prudent.”
Betterment doesn’t allow trading for the first half-hour of the day “because volatility at market open has no value to long-term investors,” and the practice helped clients “completely sidestep the flash crash last August,” Ziemer wrote.
Ziemer continued: “On the BD side [Betterment has its own broker-dealer] we have an obligation to seek best execution for our clients, both retail and institutional. In unusual circumstances, we want to do what’s best for our clients, which could mean being responsive to events as they unfold.”
Betterment had emailed clients about the decision to suspend trading “during this initial period of increased volatility,” and that they would be notified when trading resumed.
