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FLASHBACK FRIDAY: More Disclosure Wanted

Flashback Friday sponsored by Instinet

Traders Magazine Online News, September 28, 2018

John D'Antona Jr.

The more things change, the more they stay the same.

Especially when it comes to trade transparency and what the buy-side wants. Institutional traders, increasingly focused on best ex for their costumers and keeping their own compliance department happy, continue to seek as much transparency into the trading process as they can. And compared to five years ago when they open were seeking transparency into the opaque world of dark pools, still want to see the what, when, where and why for their orders and trades.

And while much has been done by the brokers and the regulators, who have taken the opaque trading process and made it more translucent, is it transparent? Has the buy-side gotten what it wants? Moreover, can the brokers give them enough trade clarity?

Brad Bailey

“I think the pursuit for transparency is a quest. Finding the right balance to balance the needs of the variety of opinions that exist is an important consideration,” said Brad Bailey, Capital Markets Analyst at Celent. “For investors in illiquid securities, who their execution time frame, not in hours, or even days, but weeks it is crucial to ensure that transparency does not penalize investors in low liquidity, or market cap names. On the other hand, transparency in liquid securities is a boon to the creation of actionable data that allows deeper insight and analytics into trading.”

Spencer Mindlin, analyst at Aite Group, told Traders Magazine he looked at market transparency as something that is dependent on one’s point of view – namely either the buy-side trader or sell-side sales trader.

“I think the answer to that question depends on who’s being asked,” Mindlin began. “The buy-side will likely say ‘no’ and they want and need more transparency. Exchanges will market transparency as a competitive differentiator. And the sell-side is typically stuck in the middle.”

In the end, he said that market structure evolves in cycles driven by innovation and regulation. Therefore, each time market structure undergoes a significant change there’s likely to be renewed call for additional transparency.

So, where does that leave the market?

“It’s important for all involved to appreciate the pros and cons between voluntary and mandatory disclosure,” Mindlin continued. “Mandatory disclosure comes with significant costs in spite of the benefits it purports. The industry is grappling with a reality for compliance, and there is typically a wide gap between a regulatory compliance report and a report that is informative and useful for the end users. And voluntary disclosure is different and might earn a competitive edge with clients. In the end, regulators and competitive forces aren’t going anywhere soon.”

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