Buyside Irked Over Exclusion from Tech Talks
Traders Magazine Online News, November 6, 2012
Buyside trading executives and their representatives are concerned they are not being consulted in industry discussions over algorithms run amuck and how to curb them.
“I’m not sure the buyside’s voice has been loud enough in these conversations, particularly as it relates to recent discussions like the SEC roundtable,” Steve Sachs, head of capital markets for money managers Proshare Advisors, said at an Investment Company Institute conference last week. “Our involvement in the discussion is extremely important.”
At the outset of October, the Securities and Exchange Commission held a Market Technology Roundtable in Washington to analyze the spate of operational errors on stock markets this year, in particular the runaway algorithm that sent a flood of erroneous orders onto exchanges on August 1 from market maker Knight Capital Group. Present at that discussion were brokerage and exchange officials, but no money management executives.
“The buyside wasn’t represented,” Ari Burstein, senior counsel at ICI, said during the ICI’s Web event. “It was also not a part of the working group that proposed the ‘kill switch’ either.”
In advance of the Oct. 2 roundtable, an industry group that included NYSE Euronext, NASDAQ, BATS and Direct Edge said they were prepared to set up limits on the amount of trading their members conduct in a given trading session and shut them down if they exceed pre-set peaks.
The purpose of the exchanges’ ‘kill switch’ would be to nip any potential algorithmic disaster in the bud such as the one that nearly put Knight into bankruptyc. The SEC is in favor of the kill switch idea.
The September 28 letter to the SEC from the industry working group was not signed by any buyside trading executives.
But a few were involved in drafting the letter, Joe Mecane co-head of U.S. listings and cash execution at NYSE Euronext, said at the ICI event. “There were some people who didn’t sign the letter because they couldn’t get approval from their companies,” Mecane explained.
Even so, Burstein echoed Sachs, saying “the buyside wants to offer its assistance. We want to make sure there are no unintended consequences for funds.”
The ICI expressed its displeasure at being excluded from the roundtable to the SEC directly in a letter last month. The comments in the letter mirrored those of Sachs and Burstein at the ICI webinar.
“If decisions are going to be made regarding initiatives and proposals to address trading andtechnology, particularly those that may impact the tools used by funds whentrading, long-term investors must be a part of that discussion,” Karrie McMillan, the ICI’s general counsel, told the SEC, in an October 23 letter.
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