By Gavin Adamson
London, U.K.
(March 20 – 16:30 ET) – Twenty-four hour trading is inevitability and that poses quandaries for mutual fund managers. While mutual funds could benefit from increased global liquidity as more participants enter the market every day, regulators will have some tough decisions to make, say industry leaders. The remarks were made today at the third Annual Buy Side-Sell Side Conference in London, England.
“In a 24-hour trading day institutional investors dominated by the mutual funds, there will have to be a day session and then an evening session,” says Bradley Hunt, European marketing director for Instinet UK Ltd., a subsidiary of Reuters Holdings PLC. “Fund managers will have to choose one session because there needs to be a close in order for unitholders to see there valuations every day.”
On a volatile trading day, some abuse could arise, says Mike Cormack, a national sales manager at Archipelago LLC, and former manager of equity trading at American Century Investments.
For example, explains Cormack, most international funds own American Depository Receipts. They’re traded on Nasdaq or the NYSE, and attached to some equivalent security in the U.K., he says. But the product would have poor liquidity in the domestic
market, so if you want to establish a good position you’d want to buy in the UK. SO you could pricing your fund at the close of the U.K. day with markets up 1%, he says.
“If the Dow falls 1500 it’s a no brainer. You’d sell with a 98% chance you were going to make a lot of money because you have information about where the US market is closing.”
There’s no perfect answers to these regulatory questions, adds Cormack, and a market with a transparent and solid pricing mechanism might keep things on the level.