By: Mark Viani, Director, Institutional Sales and Managed Account Solutions and Chris Halverson, Director, Institutional Sales
Managed accounts continue to gain momentum across the financial services landscape, with assets totaling $13.5 trillion as of Q3 2024 – a 6.5% increase quarter-over-quarter. Exciting as this growth has been, raises the stakes for pressing questions around efficiency, liquidity, and best execution.
Trade rotation remains a common practice in the management of model-driven accounts. It’s a way to operationalize trading across tiers — first executing institutional orders, then custodial wrap accounts, and finally sending model files to third-party sponsors. On paper, this sequencing helps firms stay organized. But in practice, it introduces inconsistency, inefficiency, and performance disparity.
Using trade rotation, clients participating in the same strategy may end up with different prices for the same security, based solely on when their order was sent. In volatile or thinly traded names, that gap can be substantial. And while trade rotation is generally accepted by the industry, it runs counter to what regulators and fiduciary standards ask for: that no client be systematically advantaged or disadvantaged relative to another. A performance disparity, even decided by the luck of the draw, is still a performance disparity. If a regulator were to home in on trade rotation as a hindrance to best execution, many firms might find themselves unable to defend the practice.
We’ve written about the inherent shortcomings of trade rotation in the past, but the issue becomes even clearer when viewed through the lens of real-world trades. Below are two concrete examples – one in a highly liquid, volatile equity; the other in a stable, relatively illiquid closed-end fund – that highlight the scope of the challenge and how CAPIS ARC, a post-trade allocation utility for investment managers sub-advising the managed account industry, helps managers solve for it.
Apple: High Volumes, High Stakes
Apple (AAPL) is among the most liquid stocks in the world, but that doesn’t mean its price is static. Take August 5, 2024 – on that date, AAPL traded between $196.00 and $213.50 for a single-day swing of $17.50, or nearly 9% of its value.
When a model change calls for adding Apple to portfolios across institutional, wrap, and model delivery accounts, managers often execute these trades in sequence. That means some clients’ orders go out early, while others wait their turn — potentially hours later.
With that kind of intraday volatility, those differences matter. A client whose order was routed in the morning would have paid closer to the bottom of that swing, while one whose account was handled later in the day might have paid $15 more per share. These differences can be significant at scale — even though the accounts may be part of the same strategy, responding to the same model signal, executed by the same desk.
The CAPIS ARC Solution: While aggregating trades across platforms is logistically difficult at scale, CAPIS ARC gives managers the ability to aggregate eligible accounts into a single block — combining institutional and custodial assets for one coordinated execution. Sponsor platforms often restrict venue access — but ARC lets managers trade wherever liquidity is ideally sourced, whether that’s a dark pool, lit market, or trusted institutional broker. The trade is sent once, at one price, to the venue that offers the best opportunity to source liquidity.
This eliminates performance dispersion across clients, reduces market impact, and aligns execution with regulatory expectations for fairness. Managers no longer have to choose between operational efficiency and fairness — they can ensure both, with full control over execution quality.
Putnam Master Intermediate Income Trust: Smaller Numbers, Big Differences
While Apple highlights the volatility of large-cap equities, the Putnam Master Intermediate Income Trust (PIM) illustrates a different dimension of the same challenge. PIM is a widely held closed-end fund with a relatively thin liquidity profile — its 30-day average daily volume is just 41,000 shares.
On March 5, 2025, PIM traded between $3.28 and $3.37. That $0.09 disparity amounts to a 2.7% intraday range – more than enough to materially impact outcomes, especially when multiplied across hundreds or thousands of accounts.
In these scenarios, trade rotation doesn’t just create variation—it introduces timing risk. Traders may be forced to spread execution over multiple days. Sponsors may restrict access to external liquidity venues. The end result is that some accounts get the intended exposure immediately, while others absorb slippage or delay.
The CAPIS ARC Solution: As with AAPL, CAPIS ARC enables managers to aggregate PIM trades across account types and execute them as a block. Rather than routing orders one by one, firms can act once —minimizing delay and allowing them to source liquidity wherever it resides, not just through sponsor-directed venues. This is especially valuable in thinly traded products. ARC restores control and flexibility to the trading desk while ensuring all clients receive the same price and timing.
Conclusion: A Common Solution for Disparate Markets
These two examples – AAPL and PIM – illustrate opposite ends of the market spectrum. One is a highly liquid stock with frequent price movement. The other is a low-priced, illiquid fund with limited daily volume. But they share the same underlying challenge: trade rotation introduces execution disparity.
Whether the swing is 9% or 3%, the root issue is the same:
• Clients receive different prices for the same model-driven trade
• Managers lose visibility and control over sequencing
• Execution outcomes depend more on structure than strategy
ARC resolves this by allowing managers to trade once, for all eligible accounts, with full control over venue and timing. It also promotes operational clarity – with full fee transparency, fewer tickets, and the freedom to execute trades wherever liquidity can be found. It’s a simple change in approach, but one with far-reaching impact—for execution quality, for fairness, and for client trust.
