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Jared Dillian
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In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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February 1, 2003

Mellon Gets Tough On Trading Costs

By Peter Chapman

Top money manager Mellon Private Asset Management, reeling from a steep drop in assets under management, has undertaken an ambitious plan to get its trading costs under control.

The investment house in Boston is instituting a comprehensive program to monitor the order-handling practices of its portfolio managers, analysts, traders and brokers. Mellon will systematically measure the costs associated with each trade from the moment a portfolio idea is hatched to its ultimate completion.

Mellon's decision is part of a growing movement among buyside shops to analyze the implicit costs associated with executing block trades. Market impact, opportunity costs and slippage are all getting increased scrutiny by the buyside. That's because of poor investment returns and regulatory pressure.

Mellon has watched its equity assets under management plummet from $50 billion to $30 billion in the past few years as its performance has deteriorated. The new policy will allow Mellon to more closely monitor the performance of its traders as well as that of the individual brokerages.

"We believe this will empower our traders," said Paula Peter, Mellon's head trader. Her comments came at a panel discussion at the recent Security Traders Association of Chicago conference. "If they are being measured, they will pay more attention. They will feel it is more important to follow a trade rather than just hand it off to someone else."

Peter also hopes to use the information gleaned from the process to challenge Mellon's portfolio managers' commission allocation decisions. Rather than just focus on a broker's research, Peter believes, managers should consider execution quality as well.