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.
A suite of liability driven investment (LDI) indices has been launched by STOXX and RiskFirst to aid trustees and consultants select, monitor and challenge managers.
British Airways and the trustees of one of its pension schemes are set to argue over the purpose of a pension scheme, leading to an impactful judgment for DB pensions. James Phillips explores the issue
Bank of England governor Mark Carney has said there is still a lot of data to consider before the Monetary Policy Committee (MPC) can decide when to next hike interest rates.
Savers are not squandering their tax-free lump sums under Freedom and Choice but are taking a more cautious approach to retirement, according to Prudential research.