Consider the plight of the poor mutual fund manager: Most of
his or her trades are blocks of 250,000 shares or more, and their magnitude can
move the market, especially in thinly traded stocks. Add to this the piling on
effect of hundreds or thousands of day traders and other fund watchers who
benefit from “information leakage” from the brokerages handling funds’ trades.
These traders scrutinize fund managers’ buying and selling and try to piggyback
on their trades. This adds more volume and momentum to the fund managers’
trades, and that can mean less profit if the other traders move the market
before the funds’ trades are completed.
The PlexusGroup estimates this behavior costs institutions and their investors
more than $100 billion a year by driving the cost of a trade up from 5 cents a
share to 45 cents or more.
But what if fund
managers could disguise their trades, or initiate trades with other fund
managers directly? That’s the premise behind LiquidNet, which aims to
build a large liquidity pool exclusively for buy-side traders.
There's more on LiquidNet in Part 2 of CTOMentor's peer-to-peer white paper:
Peer-to-Peer Computing and Business Networks:
More Than Meets the Ear, Part 2 – How Are Businesses Using P2P? Part 2 is available at
MindCrossing
for a fee of $50. Part 1 - What is P2P? is available for free at
CTOMentor.
.