The investor’s biggest challenge in the U.S. is the fragmented market structure, which has driven up costs across as many as 52 trading venues, introducing a “latency overcharge,” Schanke said.
The market as he sees it “isn’t good enough for raising investor confidence,” which has been an issue in the U.S. since the financial crisis and was deepened by the flash crash of May 2010. While the solution isn’t necessarily public ownership of exchanges, he said a closer look at the existing regulation could help make markets less complicated.
“Some of the things that an exchange does are in a way a utility function,” Schanke said.
The fund in June said it supported Brad Katsuyama’s IEX Group Inc. exchange because it allows “all players to participate on the same terms.”
IEX, which the wealth fund uses for both direct and indirect trades, doesn’t pay firms to buy or sell shares, shunning a practice that many markets use to lure business from high-speed traders. It mandates a 350-microsecond delay between requests to trade and executions to prevent traders from pre-empting their moves through high-frequency maneuvers.
Norway's $860 billion sovereign wealth fund in June said it supported Brad Katsuyama's...Read More
IEX, made famous in Michael Lewis’s best-selling book “Flash Boys” could shield investors from the predatory habits of high-frequency traders, the fund said then.
What the fund needs is a way to make large trades without impacting the markets, something that Schanke said is easier to do in Europe, where rules are more relaxed.
“Trying to find liquidity without having an impact when you’re doing it is an over-arching challenge we will always have,” he said.
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