Part Three of the Three Part Series (click here for Part One and Two)

In the previous two blog posts we examined the existence and resilience of trade rotation and how to quantify the impacts on performance.  Today’s question…”How can we eliminate rotation?”

If you analyzed the impact of rotation and concluded that it makes sense to consider ways to eliminate the practice, what is the next step?

Step One

Renegotiate trade away fees:  In many cases, we have seen custodians reduce and even eliminate trade away fees.  In a recent roundtable discussion, David Krebs,  provided his perspective and advice. “RIAs and Outsourced Trading: What You Need to Navigate the Markets.”

Step Two

Solve for the operational complexities:  While some advisers have been able to use internal staff and technology solutions, others have found third party middle office providers to be helpful, such as Archer IMS, SEI, and STP Investment Partners.

Step Three

Trade reporting and settlement:  Understanding that most wrap/custodial sponsors require a net price, step outs have routinely been used to report trades to the sponsors.  Unfortunately, most step outs will require the executing broker’s compensation to be in the form of a markup/down of which many are not equipped to handle. This is where CAPIS ARC can help.

Understanding ARC:  CAPIS ARC is a post-trade allocation utility for investment managers sub-advising the managed account industry.

How Does CAPIS ARC Work?

• Investment advisors can execute aggregated institutional and managed account orders with CAPIS or their broker of choice.
• Wrap and institutional orders can be executed as a block, promoting parity and best execution for all accounts.
• The executing broker then settles to a clearing account at CAPIS, automating the allocation process with each sponsor/custodial
• Each sponsor receives an automated email notification with detailed delivery instructions.
• ARC automates the step-out process, and each component of the net step-out price is fully disclosed, which includes execution price, commission, and operating fees.
• Compliance reports, itemizing commissions and fees paid, are standard out of ARC.

Comments on this series are appreciated as we hope to prompt discussion within this group of practitioners and experts.

For questions or to learn more about CAPIS and ARC, please reach out to [email protected] and follow us on Twitter (@capisinc) and LinkedIn for more updates and insight from our team.