The Pragma report [1] that the WSJ refers to investigated when a TWAP algo would need to "cross the spread". Ie, when the order book is really deep, then it takes so long for a passive order to execute that crossing the spread becomes necessary.
This effect has nothing to do with HFT firms. In fact, the referenced white paper doesn't even mention HFT at all! So it's odd that Pragma's CEO would make such a remark to the WSJ.
It's even odder that the Pragma paper doesn't mention the numerous other ways of executing a passive order, such as pegged orders, pro-rata venues, low-rebate exchanges, or even crossing networks. The authors describe a totally out-dated view of how liquidity is accessed for a stock like BAC.
Comments
The Pragma report [1] that the WSJ refers to investigated when a TWAP algo would need to "cross the spread". Ie, when the order book is really deep, then it takes so long for a passive order to execute that crossing the spread becomes necessary.
This effect has nothing to do with HFT firms. In fact, the referenced white paper doesn't even mention HFT at all! So it's odd that Pragma's CEO would make such a remark to the WSJ.
It's even odder that the Pragma paper doesn't mention the numerous other ways of executing a passive order, such as pegged orders, pro-rata venues, low-rebate exchanges, or even crossing networks. The authors describe a totally out-dated view of how liquidity is accessed for a stock like BAC.
[1] http://www.pragmatrading.com/research/research-notes
A similar logic applied to value investing would conclude long-term investors result in under-valued stocks.