Traders Face Transparency

Chidem Kurdas

Goldman Sachs, among others, has suggested that the Securities and Exchange Commission require stock exchanges to disclose more information. This is one of the regulatory changes proposed in response to the May 6th “Flash Crash”. What does it mean for funds and other active traders?

It’s always a matter of achieving a balance between transparency and not signaling to the market what you’re doing, says Dmitri Galinov, head of liquidity strategy at Credit Suisse. He was talking at a conference organized by the Investment Company Institute, the mutual fund association.

Traders see benefit from additional information but don’t want to reveal their own hand. Everybody would love it if other people’s trades became public but not their own! The question is what level of disclosure achieves a realistic compromise.

The proposal for end-of-day transparency is reasonable, said Steve Sachs,  director of trading at Diamond Hill Investments, a manager of mutual and hedge funds and separate accounts, with combined assets of $7.9 billion.

Goldman Sachs went further. In a letter to the SEC, the bank argued that requiring exchanges to disclose the special data types they offer and the relevant fees involved would help to ensure a level playing field. Greg Tusar, managing director at the  equities division of Goldman Sachs, says information as to where trades are routed should be available.

People at the exchanges don’t agree that the playing field is not level. The impression that the deck is stacked against one set of people is just a result of market dynamics, said Eric Noll, an executive vice president at Nasdaq. “There is no disenfranchising,” he said at the ICI conference.

But mutual fund managers tend to see themselves as victims of high-frequency traders who take advantage of special data from exchanges. The public disclosure of such information will put an end to certain types of trades but some hedge funds could benefit, traders say.


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