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Jared Dillian
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Was it Worth It?

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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May 9, 2008

Beyond Volatility

By Michael Scotti Editorial Director

I'd like to share a tidbit about last month's cover story on fragmentation that I found ironic. The anchor of the feature story was a survey of buyside traders' views on fragmentation. One school of thought, as the article pointed out, said fragmentation is nothing more than competition. Who can be against competition, right?

Here's where the irony begins: Before May Day (1975), a firm by the name of Weeden & Co. looked to challenge the New York Stock Exchange's unfettered power. Don Weeden, a principal there, fought for increased competition between market centers, as well as for an unfixing of commission rates. This battle between Don Weeden and the NYSE has been widely chronicled in numerous books.

History has proved that Don Weeden was ahead of his time. But the irony of last month's story on fragmentation is that Don Weeden's granddaughter, Katherine, sent out the survey. Katherine oversees electronic surveys at SourceMedia. That, I thought, was an interesting coincidence, and so did Katherine, who knows the Weeden story all too well.

While researching the story on fragmentation, reporter James Ramage found that traders were also talking about the impact of volatility, too. Fragmentation and volatility have been a serious one-two punch to traders seeking best execution. This month's story focuses on how volatility has impacted the cost of trading-and how traders have begun to adapt.

Volatility is a theme in our Buyside Snapshot as well. Andrew Bell trades financial stocks for Acadia, a hedge fund based in St. Croix, Virgin Islands. He points out that hedge funds have gravitated to the financial sector because of the big intraday swings those stocks can now have. You can read more on Bell's thoughts about financial stocks in that story.

There is also a story this month on distressed bonds. How's that? Well, it seems that JonesTrading sees opportunity-and demand-from clients looking to buy or sell large blocks of bonds that trade at a discount. The story discusses the firm's strategy and how it plans to use its large sales force. Corporate defaults have already increased dramatically, so this move into another asset class could prove to be an interesting story in the long term.

NYFIX's purchase of FIXCITY, an indications-of-interest vendor, could finally lift it into the big leagues of the IOI world. As one analyst points out, NYFIX is going after AutEx. This competition between the two firms could prove interesting. A pal of mine joined AutEx in the late 1980s, and veterans there told him at the time that IOIs would be obsolete in a few years, so "don't get too comfortable, kid." He stayed at AutEx a long time, and IOIs are still going strong.

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