You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
What do funds get for $.05/sh commish?
- Thread starter AAAintheBeltway
- Start date
Quote from AAAintheBeltway:
In this whole mutual fund corruption mess, the use of "soft dollars" has not really been an issue. The ICI did issue a resolution to ban soft dollars, which was immediately attacked by the geniuses on Kudlow& Cramer as somehow unfair to research shops, who apparently depend on this source of funds.
My understanding is that mutual funds and other institutions typically pay 5 cents a share for executions, or roughly 10 times what most of us pay. Some of this extra goes to soft dollar payment for things like research or trading systems. From an economist's standpoint, any time you have this sort of apparent extra expense that is used to subsidize something else, you have to wonder what is going on. My understanding is the arrangement is attractive for funds because they stick the fund shareholders with the excessive commissions, then use the soft dollars to pay for something that the management company would otherwise have to eat. Is this correct? If so, isn't that an enormous abuse and rip-off?
I ran this by a friend who manages a fund and he made fun of me and said what they are paying the big commish for is the broker's ability to move size without distorting the price too much. My understanding was that brokers had backed off from doing this, but maybe I'm wrong. Certainly my impression is the fund guys know next to nothing about trading and execution and regard it as somehow beneath them.
Is this just another rip-off or do the funds get value for paying 10 times the commish we pay?
AAA, they typically pay for the use of capital. If I am Fidelity and I want to sell 200,000 shares of something that trades very thinly, I can call up any broker and it the piece done with little market impact (i.e., maybe down 10 to 25 cents at the most).
Quote from indahook:
you are right..very time consuming. That why the funds pay up for using a desk. When I first started I would get screwed by a big print. Thats the biggest disadvantage to trading upstairs. There are ways of getting involved in those prints...you have to be on the bid/offer at all times with a portion of the order. In my experience the spec will know you are a DOT buyer/seller all day (in the case of NYSE of course) and let you be the hammer if no one else is around.
Interesting. My expereicne lies only with NASDAQ VWAPS so we are talking about slightly different things..
Already posted here
http://www.elitetrader.com/vb/showthread.php?s=&threadid=26238
Bloomberg Columnists
Michael Lewis , whose books include "Liar's Poker," "The New New Thing" and "MoneyBall," is a columnist for Bloomberg News. The opinions expressed are his own.
http://quote.bloomberg.com/apps/news?pid=10000039&sid=a7WQcdj7fooU&refer=columnist_lewis
"Echo of Analysts
Enter the regulators, and their post-bubble zeal. If one consequence of the mutual-fund scandal is to drive small investors away from their faith in mutual-fund stock pickers, some good might come of it.
But that isn't likely. What's likely is that the scandal will leave ordinary investors with the impression that the main trouble with their financial institutions is that they are dishonest.
In this respect, the mutual-fund scandal resembles the (phony) Wall Street analyst scandal: It is likely to create the illusion of reform rather than the genuine article.
The settlement with Wall Street firms over their analysts' exuberance for Internet stocks created the illusion that Wall Street research, once tainted by self-interest, is now ``objective'' and therefore reliable. But you'd be as much of a fool to follow Wall Street stock-picking advice today as you would have been three years ago -- and as likely to come out of it well.
The mutual-fund scandal will have the beneficial effect of scaring the bejesus out of mutual-fund managers who survive it. But it won't make them meaningfully more likely to invest capital wisely.
Just the reverse: Larded with even more regulation, more legal costs, more cover-your-butt provisions, mutual funds will see their costs rise. The added costs will be passed along to investors. Mutual-fund returns will be even less likely to justify fees. "
http://www.elitetrader.com/vb/showthread.php?s=&threadid=26238
Bloomberg Columnists
Michael Lewis , whose books include "Liar's Poker," "The New New Thing" and "MoneyBall," is a columnist for Bloomberg News. The opinions expressed are his own.
http://quote.bloomberg.com/apps/news?pid=10000039&sid=a7WQcdj7fooU&refer=columnist_lewis
"Echo of Analysts
Enter the regulators, and their post-bubble zeal. If one consequence of the mutual-fund scandal is to drive small investors away from their faith in mutual-fund stock pickers, some good might come of it.
But that isn't likely. What's likely is that the scandal will leave ordinary investors with the impression that the main trouble with their financial institutions is that they are dishonest.
In this respect, the mutual-fund scandal resembles the (phony) Wall Street analyst scandal: It is likely to create the illusion of reform rather than the genuine article.
The settlement with Wall Street firms over their analysts' exuberance for Internet stocks created the illusion that Wall Street research, once tainted by self-interest, is now ``objective'' and therefore reliable. But you'd be as much of a fool to follow Wall Street stock-picking advice today as you would have been three years ago -- and as likely to come out of it well.
The mutual-fund scandal will have the beneficial effect of scaring the bejesus out of mutual-fund managers who survive it. But it won't make them meaningfully more likely to invest capital wisely.
Just the reverse: Larded with even more regulation, more legal costs, more cover-your-butt provisions, mutual funds will see their costs rise. The added costs will be passed along to investors. Mutual-fund returns will be even less likely to justify fees. "