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Light at the End of the Tunnel...

Traders Magazine, April 2002

John A. Byrne Editor

A drive - bordering on fanaticism - to reduce costs when businesses are loosing money is an old trick borrowed from the texbooks of Harvard. It's simple: A business is losing 100 grand. Two employees equal 95 grand. Fire the employees and toss out the water coolers. Problem solved. It is not a creative approach but a sort of destructive alternative used by financial engineers to make both sides of the ledger neatly balance. That same approach may be evident in the current drive to reduce costs in the institutional trading markets. If you listen hard enough you'll hear it over and over: Cost control - knock it down - is the mantra. A study by the Plexus Group discovered that institutions pay up to 46 cents per share in hidden trading costs, a sum that equals $100 million each year. Of course, the only reason cost control is a mantra is because the stock market has been upended by federal laws, declining indices and a reduction in volume. Mutual fund complexes, as well as dealers on the sellside, face the same challenge: How can they become more profitable? Some on the buyside think part of the answer comes from bypassing intermediaries, such as market makers.

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