UK - Schemes looking to cut costs through electronic trading could end up increasing volatility and risk, Frank Russell Company warns.
Such equity trading – termed “crossing” – is typically used to avoid large fees accrued when using traditional broker services following a switch of mandates between fund managers.
But Frank Russell managing director of implementation services Adrian Jackson warned that there is a potential for transition strategies – that simply aim to maximise crossing in the name of cost-saving – of being counterproductive.
He stressed: “The key problem with crossing is the uncertainty built into the process.”
Jackson explained that shares can only be crossed if there are matching bids or offers on the electronic trading network, meaning that a mandate’s starting and finishing position become difficult to gauge. This significantly increases volatility.
He added that, although many people are aware of the benefits of crossing, they do not fully understand some of the pitfalls the method brings.
“Crossing is one tool at the disposal of the transition manager, but it certainly isn’t the goal.
“Unless a crossing network provides you with appropriate risk tools to control what you actually trade, research shows that it is consistently easier to buy a bad stock on a crossing network than to buy a good one,” he said.
Former BHS owner Dominic Chappell has lost the appeal against his section 72 conviction and sentence for failing to hand over information to The Pensions Regulator (TPR).
This week's top stories include Marsh and McLennan Companies agreeing to buy JLT, and the home secretary calling for AE to be scrapped in a no-deal Brexit scenario.
Lesley Titcomb says the watchdog wants closer interactions with pension funds to spot problems sooner and act before having to use its more stringent powers
The Pension Protection Fund (PPF) is consulting on proposals to charge a "risk reflective" levy for commercial defined benefit (DB) consolidation vehicles.