| Managing Transaction Costs A manager trades to improve the position of a portfolio, to capture an opportunity or, sometimes, to handle cash flows and transitions. If the process of trading was ever relegated to a minor role in the office, it has now evolved to play a central part in the investment and compliance departments. On the investing front, we have seen trading go through some dramatic changes over the past 10 years which have offered new challenges and benefits. Pretty much gone are soft dollar arrangements and high commissions and in their place we have decimalization of prices, consolidation of exchanges, electronic communications networks (ECNs), direct market access, and algorithmic trading. And there is more to be expected with Regulation National Market System (Reg NMS) requiring further changes from the market. On the compliance front, there is increased scrutiny—both from regulators and clients—on Best Execution. While it may be defined slightly differently between the CFA Institute, the SEC, and the Department of Labor (ERISA), it has the central tenet of cost efficiency and quality of services. |
