The Euro was supposed to make life in Europe easier. And MiFID was supposed to make life better for both the investor and the dealers – investors got more visibility into their orders and brokers were rewarded with passporting for the settlement and clearing of trades.
But Europe is now splintered under the new rules – execution venues have sprung up faster than a freshman on a hooker. And figuring out how much it’s costing a firm to trade has become more difficult.
This story, from Reuters, highlights some of the issues.
In the story, Richard Tibbets is quoted (found him twice in one day, Richard is getting around)
Some large asset managers and sophisticated high-frequency trading firms are now going to the extent of using sophisticated routing systems of their own to select venues and split orders.
For this step, the investor should have at least $1 billion of assets under management and three financial engineers or quantitative analysts on staff, StreamBase’s Tibbett said.
I question whether or not an investment advisor needs $1 billion of assets and three financial engineers or quants on staff. Or is that where StreamBase’s marketing/sales efforts have figured out that such an institution can then afford a StreamBase license? It’s a lot easier for an investment advisor to utilize a dealer that can provide those services – in fact most of the large dealers do this already. Large dealers invest a great deal in providing execution strategies designed to minimize transaction cost due to market impact and slippage. Much more than any firm with only $1 billion and 3 quants could hope to achieve in their career.
Routing systems today are essentially a commodity – and if you decide to roll your own, don’t forget to include the TOTAL cost of running and maintaining this type of system (with all of the required connectivity, market data, facilities, disaster recovery, hardware, database, 3 quants) versus what a dealer could and would provide in return for the flow.