Tag Archives: agency-only execution

MarketsMuse: This ETF Trading Expert Has This To Say About That…

MarketsMuse.com ETF update is pleased to share an informative perspective about best practices and “best execution” that institutional investment managers, RIAs and others should consider when using ETFs, courtesy of insight from one of the more widely respected members of ETF “agency-only” execution space. Here’s the excerpt of the ETFdb.com interview:

etfdb logoAll walks have come to embrace the exchange-traded product structure as the preferred vehicle when it comes to building out low-cost, well diversified portfolios. Furthermore, active traders have also taken note of the inherent advantages associated with the ETF wrapper, embracing the product structure for its unparalleled ease-of-use and intraday liquidity.

ETFdb.com recently had the opportunity to talk with Mohit Bajaj, Director of ETF Trading Solutions at WallachBeth Capital, about his firm’s role in the industry as well as the evolution of ETF trading in recent years.

ETF Database (ETFdb): What’s your firm’s story? What role do you play in the ETF industry?

Continue reading

Finra Steps Up Investigation Of Broker-Dealer Order Routing Rebate Schemes; Conflict of Interest Endemic to Current Market Structure

NYSE CEO Says “Not Good” while appearing before Senate on the topic of equities market structure and Maker-Taker Rebate Schemes.

Bowing to increasing pressure from regulators, law makers and law enforcement officials, Finra, the securities industry “watchdog” has launched its own probe into how retail brokers route customer orders to exchanges, according to recent reporting by the Wall Street Journal’s Scott Patterson.  In particular, through the use of “sweep letters” targeting various broker-dealers, Finra is purportedly focused on whether rebates associated with schemes that brokers receive when directing their orders to specific venues is a violation of conflict of interest rules, given that customers presume they are receiving best price execution when in fact, they often do not.

MarketsMuse, the securities industry blog that has long reported about payment-for-order-flow and the unsavory practice in which customer orders are “sold” by custodians and prime brokers to “preferenced liquidity providers,” who then trade against those customers and profit from price aberrations between multiple exchange venues and dark pools, takes pride in pioneering the coverage of this topic.

Now that main stream media journalists are beginning to “get it”,  a growing number of those following this story hope that WSJ’s Patterson and other journalists will shine light on the even more unsavory practice in which these same brokers imposing egregious fees on customers who wish to “step out” aka “trade away” and direct their orders to agency-only execution firms, whose role as agent is to objectively canvass the assortment of marketplaces and market-makers in order to secure truly better price executions for their institutional and investment advisory clients. Continue reading

Go With The Flow? ETF Execution Expert Says This…

Agency-Execution firm WallachBeth Capital’s Andy McOrmond, a recognized expert in ETF order execution for leading investment managers and RIAs appearing on CNBC with his [personal] thoughts as to whether  now is, or is not the time to “go with the flow.”

Talking points: SPY v. VYM…$HEDJ and more..  Click on the image below to launch the video clip courtesy of our friends over at CNBC.

WallachBeth Capital’s Andy McOrmond on CNBC

[Another] Institutional Broker Laments Payment-For-Order-Flow; Is There a Trend Developing?

tabb forum logoTabbForum, a publication that caters to the institutional investment community and works towards spotlighting the relevant issues of the day, has just published a comment letter submitted to the SEC by institutional [agency-only] broker Themis Trading re: topic of wider tick sizes for small cap stocks. While readers of this blog are most-focused on ETFs, options and macro strategies (and less on small caps), the Jan 27 submission letter included a comment from Themis execs that more than a few industry members might consider “incendiary,” as it challenges the core business models of the largest retail brokerage platforms and the assortment of “exchanges” who profit from today’s market fragmentation.   On the other hand, the lens that agency-only brokers peer through is different from the colored glasses that those with inherent conflicts use. Here’s the quote:

“..we believe that if the order routing and execution process were not distorted by payment-for-order-flow, then the price discovery process would be cleaner, and displayed limit orders would be encouraged, and not disadvantaged..”

Click on the above TabbForum logo to read the full article (subscription required, but registration is free!)

Pre-Thanksgiving Special: Custodians Flip The Bird to RIA Customers Seeking ETF Best Execution

riabiz logo  Courtesy of RIABiz and reporter Lisa Shidler

MarketsMuse Editor Note: Kudos to Lisa “Lois Lane” Shidler for her insightful expose profiling how custodians to RIAs excel at squeezing lemons from customers who they must think are lemmings. Though Ms. Schilder neglected to spotlight the fact that custodians systematically sell their customer orders to select principal trading firms (e.g KCG) who cherry-pick orders they can exploit for trading profit, her insight i.e. the practice of imposing exorbitant trade-away fees on those very same customers who seek to secure the real best prices via independent execution only firms is a topic worthy of sharing this story with industry regulators. Too bad those latter folks don’t get it…perhaps because they’re beholden to the biggest custodians in the industry?

Here are a few excerpts:

The big four RIA custodians are now charging advisory firms giant new fees — in the tens of thousands in some cases — relating to some ETF purchases.

Schwab Advisor Services, TD Ameritrade Institutional, Pershing Advisor Solutions LLC and Fidelity Institutional Wealth Services are levying what are known as “trade-away” fees to RIA firms that buy exchange traded funds through a broker-dealer other than the one owned by the custodian. The advisor typically chooses to use these third parties because they believe that RIA custodians are executing trades poorly along the bid-ask curve and forcing them to make ETF purchases at unacceptably high prices.

At first blush the fees look fairly benign. The fee at Fidelity is a $20 fee per account per trade. TD Ameritrade charges $25 per account. Pershing’s fee ranges from $8 to $20 per account depending on the volume of the trade. Schwab declined to disclose its fee through its spokesman, Greg Gable.

These fees have put RIAs like Chris Romano, director of research and trading with Fusion Investments Group LLC in Pittsburgh invests, in a bind in certain instances.

Though his firm manages about $139 million in assets, the bulk of them are institutional and banks custody them. Fusion advises for other RIAs but those assets are held away. In short, his firm manages just $11 million of mostly ETFs with Fidelity’s RIA custody platform, which means Fidelity’s $20 fee is too costly for the size of trades that he does.

“We don’t even consider trading away [in effort to get best execution] at Fidelity because of the high ticket trade away fee,” Romano says. “On the smaller account sizes, it can be a really significant fee. If the fee is $20, that can really add up.” Continue reading

“Agency-Only Execution Firm” To Seed Hedge Fund Clients

Cantor Fitzgerald, the “broker’s broker” that literally rose from the ashes of 9/11 to rebuild its business trafficking in multiple product types, including ETFs and options, and positions itself as an “agency-only” aka “conflict-free” broker, today announced the second phase of its plan to expand into the [often-conflicted] territory of hedge-fund seeding.

As reported by FINAlternatives,

Cantor hopes to raise $1.25 billion for their hedge fund seeding business, and the first tranche could provide between $25 million and $50 million to upwards of 25 emerging managers.

Cantor, which by virtue of its gargantuan global footprint, often finds itself not only standing in between captive buyers and sellers, but has occasionally been embroiled in issues that strike at the epicenter of the famous  Chinese Wall.  However much the strategy of a broker providing trading capital to its customers might seem to present potential conflicts with regard to the firm’s  “agency-only execution” model, one source who is not authorized by his firm to publicly comment, suggested “..industry watchers are confident that Cantor will always do the right thing..” Link to the full story by clicking on the FINAlternatives log.