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HOW WALL STREET OPERATES

volume 22 Number 8 • april 19, 2010

UPTICK p. 2

The Whey of the World

RISK p. 19

Spreadsheet Numbers Not So Clear

SPECIAL REPORT p. 21

SIFMA OPS 2010: Valuing Derivatives

LAST WORD p. 23

Canadian Two-Step

Calpers goes for Algos as Block Trading Wavers

By John Hintze

HigH stock-market volatility in 2008 and 2009 pummeled trading in large blocks of shares.

But even though the market has calmed down, block trades handled by dark crossing venues and individual sales traders may never fully return.

institutions such as calpers—the nation’s biggest pension fund—continue to replace them with algorithms, which typically slice up at least portions of giant blocks comprising tens or even hundreds of

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1139.73

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www.securitiesindustry.com/FIn50 Mar. 31 - Apr. 15, 2010

thousands of shares into pieces of often a few hundred shares or less.

By executing the pieces across multiple execution venues, over several hours or even a few days, institutions can hide their trading intentions and lower the risk of executing a trade at the wrong price.

“our direct use of algo-
rithms has gone up and will
continue to go up,” says Dan
Bienvenue, senior portfolio
manager at california Public
employees retirement sys-
tem (calpers) who has been
responsible for implementing
and directing the fund’s inter-
nally managed portfolios since
september 2008.
volatility is problematic for
large block trades because it
heightens the risk of a trader
selling 30,000 shares at $40 a
share, seeing the price quickly
rise to $42, and missing out in
a $60,000 gain.
similarly, the trader could
buy the block and see the price
drop sharply. that risk has
been compounded by the in-
creasingly electronic markets,

CONTINUED ON PAGE 6

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