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Fidelity, TRowe Price and Others to Start Dark Pool.
On the surface, anyway, it would appear they're looking out for their shareholders' interests. Industry is very sensitive to the "skimming" from funds that occurs through various forms of frequent (fund) trading, as well as damage from the "front-running" of securities they're attempting to buy/sell on the open market. By getting at least some of their transactions out of the public eye, they're hoping to create a more level playing field.
Savings may also accrue to management from lower operational costs. On the surface a win-win. Execution will be another matter. Looks like they will have their own regulatory authority or board to assure members are enforcing policies aimed at curbing frequent trading.
Doubt they're looking at the dozen or so trades a year you and I make. There are big boys out there, including block traders, who have been using very sophisticated well organized methods for a number of years. What these guys skim from a fund's earnings ... smaller investors lose.
Michael Lewis and his book have fingerprints all over this. He claimed he had spoken to T. Rowe Price about the high frequency front-running so exposed and found them completely in the dark (pun intended). I somehow doubt that assertion. - Wonder if Jack Bogle will weigh in on this and what he'll say.
While it doesn't quote Bogle, it does note that Vanguard is not participating or commenting.
Dark pools have the potential to help front running, as Hank noted. That would seem to apply to index funds as well, the R2K being the best example of an index especially subject to front running.
I don't see this as benefiting the management companies. The funds, not the management companies, pay for trading costs (they're not included in the ER, but they are nevertheless part of the funds' expenses). So reducing this cost would seem to primarily help the funds themselves.
I say primarily, because some funds, such as Fidelity's, have management fees based on the funds' relative performance. So if this gives their funds a relative advantage, the funds' relative performance could be slightly better, and this could increase the management fees.
msf makes a good point. I actually thought of that and tried to "retrench" my wording an hour later (note insertion of "may".
What I don't fully understand is how they will operate this. Certainly there will be expenses involved (records, regulatory fees, staff, infrastructure, etc.) I guess they're hoping their costs will be more than offset by not paying fees to banks and brokers. That's not too far-fetched, as the big houses like Price already have much of the infrastructure and know-how in place. Could they actually derive company profits from that operation?
Comments
Regards,
Ted
http://www.marketwatch.com/story/money-managers-led-by-fidelity-close-to-launch-of-dark-pool-2015-01-19-231035956/print
Still long ICE (which owns the NYSE.)
Savings may also accrue to management from lower operational costs. On the surface a win-win. Execution will be another matter. Looks like they will have their own regulatory authority or board to assure members are enforcing policies aimed at curbing frequent trading.
Doubt they're looking at the dozen or so trades a year you and I make. There are big boys out there, including block traders, who have been using very sophisticated well organized methods for a number of years. What these guys skim from a fund's earnings ... smaller investors lose.
Michael Lewis and his book have fingerprints all over this. He claimed he had spoken to T. Rowe Price about the high frequency front-running so exposed and found them completely in the dark (pun intended). I somehow doubt that assertion.
-
Wonder if Jack Bogle will weigh in on this and what he'll say.
http://www.nasdaq.com/article/money-managers-led-by-fidelity-close-to-launch-of-dark-pool-20150119-00432
While it doesn't quote Bogle, it does note that Vanguard is not participating or commenting.
Dark pools have the potential to help front running, as Hank noted. That would seem to apply to index funds as well, the R2K being the best example of an index especially subject to front running.
I don't see this as benefiting the management companies. The funds, not the management companies, pay for trading costs (they're not included in the ER, but they are nevertheless part of the funds' expenses). So reducing this cost would seem to primarily help the funds themselves.
I say primarily, because some funds, such as Fidelity's, have management fees based on the funds' relative performance. So if this gives their funds a relative advantage, the funds' relative performance could be slightly better, and this could increase the management fees.
What I don't fully understand is how they will operate this. Certainly there will be expenses involved (records, regulatory fees, staff, infrastructure, etc.) I guess they're hoping their costs will be more than offset by not paying fees to banks and brokers. That's not too far-fetched, as the big houses like Price already have much of the infrastructure and know-how in place. Could they actually derive company profits from that operation?