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As we approach 2015, European regulators are driving a secular shift in the buy side’s payment for research framework. Rarely have non-U.S. policies and procedures generated such a high level of influence on domestic institutional commission structures. Commission Sharing Arrangements are at the center of this debate.
This brief call discusses the following:
- The conflicting perspectives of the various European regulatory bodies on the future of payment for research
- Order handling and potential outcomes in a post MiFID II marketplace
- How these changes are impacting U.S. based investment managers today and into 2015
We demonstrate links between order duration, dark pool performance, and orders filled in both lit and dark venues. Five questions are addressed. Does exposure of an order to lit markets affect trading performance in dark aggregation schemes? Do market conditions affect the degree of dark order exposure to lit markets? Do market conditions affect trading performance in the case of mixed dark and lit child orders? Is there a connection between market conditions and the duration of an order? Do trading costs increase with the number of venues visited by an order? In answering these questions, we find that dark pool aggregation is beneficial. The fragmentation of liquidity enabled through dark aggregation algorithms has not reduced transaction costs relative to directly accessing a single block crossing venue, however.
FROM allegedly failing to execute trades at the best price, to clients being misled about the type of trade being executed, trading in dark pools has taken its fair share of criticism recently. But against this flurry of negative headlines, and with the EU seeking to enforce stricter controls on dark pools, it is important to remind ourselves why investors want to trade away from public exchanges, without prices being displayed until after execution.
On July 3, 2013, the courts pronounced caveat emptor with respect to execution performance in the FX market. U.S. District Judge Denise Cote threw out a lawsuit, which accused JPMorgan Chase & Co. of breaching a fiduciary duty to custodial clients by charging “hidden and excessive mark-ups” on currency trades. Judge Lewis Kaplan dismissed a lawsuit directed at officials of Bank of New York Mellon, for ignoring “red flags” or knowing that trades were being processed at the worst or near-worst prices of the day.
Ofir Gefen, Head of Electronic Brokerage at ITG Asia Pacific, looks at how opportunistically taking blocks of liquidity rather than sticking with volume-based trading habits can improve trading performance.
Having demonstrated an initial, and understandable, wariness of cloud services, trading firms and other players such as hosting providers in the institutional trading environment are slowly coming to embrace the technology. With storage demands for mid-size firms growing at approximately 90 terabytes a year, perhaps this is not surprising. Building proprietary infrastructure that can keep up with this level of growth is comparable to painting the Golden Gate Bridge: a never-ending task.
We address a single question in this paper: is consideration of trading strategy an essential component in assessing venue performance? The answer is, yes. We arrive at this conclusion through comparisons of strategy use across venues and performance metrics, by venue, venue type, and strategy.
Our Global Cost Review report for the First Quarter 2014 studied global commissions and implementation shortfall costs for the period.
ITG Financial Engineering has recently completed its R&D work on international stock specific intraday volume profiles, extending its robust estimation methodology to common stocks and several other security types to cover more than 50 markets around the world.1 The intraday volume profiles, which include the estimated percentages of the daily volume to be traded in each 15-minute interval of the continuous trading session and at the and closing call auctions, are estimated for individual securities traded on each market and can be used for efficient execution of large orders.
“The most valuable commodity I know of is information” – to quote Gordon Gekko from the 1987 movie classic Wall Street. This line has never been more significant than in today’s data-fuelled financial markets, where detailed analysis of information can provide that all important competitive edge – both now and in the future. To achieve this, firms are looking towards Transaction Cost Analysis (TCA), which enables them to reduce costs and hone trading strategies.