Narrowing Spreads For Illiquid ETFs
Traders Magazine Online News, May 3, 2012
SunGard’s Fox River Execution has also tried to better educate the buyside on lightly traded ETFs. That way, managers can decide for themselves if the bids and offers posted are justified.
Paul Daley, head of product management for Fox River, said to identify the fair price of an ETF, a trader has to have data about the underlying assets of a fund and be able to process that data in real time.
“There are some cases where the bid-offer spread is justified, and then there are other cases where it is not, but distinguishing between those two just by looking at the spread is a near impossibility,” Daley said. “You have to look at what is going on in the underlying securities.”
Fox River offers real-time data for the underlying basket, arguing it is necessary for traders to have that data so they can protect themselves with limit orders.
“You are paying a commission to a broker for a reason,” Daley said. “You need that broker to set intelligent limits for you, and if they’re not doing that, find one that will.”
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