From Schweser… “Brokerage commissions have fallen dramatically. The temptation is to shift costs to those that are implicit, rather than explicit. Thus, trading between buy-side and sell-side traders is becoming more adversarial. Furthermore, the disclosure of information in a trade can be used against a trader later on, especially with the advent of electronic trading venues where trader identity can be kept confidential. Thus, trust has become more important given the potential negative ramifications of trading with an unscrupulous trader.” Anybody care to summarize this in plain language? I don’t understand how the cost shifting makes the relationship become more adversarial. Thanks in advance.
Commissions fall , and costs depend more on bid-ask than on commissions or other explicit charge. Bid - ask spread is really an information play. If the buy-side has superior information , the sell-side is at a disadvantage because they cannot tune the bid-ask in the absence of the information . Simply put , the dealer does not know your urgency , and if you have superior knowledge of the stock , as a buyer you get the deal done at lower price to you , but higher price to the dealer than otherwise. Same for sale, you get a higher price , and the dealer does not get as low a price as they would like. Hence your cost advantage given your possession of exclusive knowledge is superior , putting you into an adversarial relationship