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December 1, 2004

The Costs Comes Tumbling Down

By Gregory Bresiger

Trading costs have been plunging since the turn of the century, thanks to the regulators. That's what several panelists said at an Instinet/Tabb Group roundtable in New York.

But why have traders become so concerned about costs? Robert Shapiro, a consultant who formerly traded for Iridian Asset Management, says regulators now pay more attention to costs. He says the scrutiny has "forced fund management companies to become much more transparent about how they conduct themselves and how they choose their brokers and how they pay their brokers."

Ben Sylvester, a trader at Babson Capital Management, added that commissions have also taken a beating. He said the greatest change "has been the decline in commission rates. Yet when you look at it...implicit costs being implementation shortfall and the explicit cost being commissions, it is an eight-to-one ratio." Another panelist cited reductions in trading costs since 2000: Thirty-seven percent on the New York Stock Exchange; forty percent on Nasdaq and 43 percent on non-U.S. stocks.