A trade’s volume is a small percentage of average daily trading volume. The trade has low spreads and is not urgent. Which of the following would be the best method of filling the trade? A) Placing the trade in a crossing system. B) The use of a simple logical participation strategy based on VWAP. C) The use of an implementation shortfall strategy. Correct answer is B. Any thoughts why not A?
Crossing is good when spread is high and/or want anonymity. Otherwise, it is appropriate: low % of avg daily vol and not urgent
Here are some properties of POST IT or Crossing System Minimum explicit TC (but high implicit cost like delays and MTOC) No Information leakage Provide anonymity No Market Impact -------------------------------------- SLPC based on VWAP will be better because it mimizes implicit cost and in this particular situation market impact and time is not a concern so emphasis will be on price.
Thanks, Captain, very helpful.
happyking02 Wrote: ------------------------------------------------------- > A trade’s volume is a small percentage of average > daily trading volume. The trade has low spreads > and is not urgent. Which of the following would be > the best method of filling the trade? > > A) Placing the trade in a crossing system. > > B) The use of a simple logical participation > strategy based on VWAP. > > C) The use of an implementation shortfall > strategy. > > Correct answer is B. Any thoughts why not A? I think there’s a chart in the CFAi text that hammers all of these out… I’m not sure which page though. Flip though and I’m sure you can find it.