How does the experience change throughout the day?
Gerry O’Reilly: Our data group gets notified of the index changes coming at that day’s close. Once you know an index change is coming, a fund tracking that index has to adjust.
On a given day, you could have 10 to 20 different corporate actions going on, such as a company issuing more shares. Each trader gets assigned a corporate action and takes point on that stock. They will figure out what each fund needs to do to ensure the index weights are correct.
Trading can get really busy when indexes add or remove names. Say, for example, XYZ Company has outgrown a small-cap index and is being added to a mid-cap index. We’d need to mirror that move in the funds tracking those indexes.
How does Vanguard manage the global nature of the market? What specific difficulties come up?
Mike Buek: When we go global, we’re passing trades to Vanguard’s European and Australian-Asian desks to execute. And they pass us trades to execute for their funds. The communication has to be good between the three desks so the traders executing each trade understand the objective.
That’s challenging because of the different hours, but with improved technology and our expanded team, we’re able to make sure our portfolio management is globally consistent.
Gerry O’Reilly: International trading can often involve more markets. In the U.S., we mainly deal with the NYSE and Nasdaq. In other regions, you might have 10, 15 different markets closing at different times with different rules. In Europe, you’re looking at “When’s Norway closing? What about Germany?” You have to make sure you get your orders down in time because if you miss it, you miss it.
The other obvious difference is currency. U.S. investors are giving us dollars, which we have to convert into local currency when we buy international stocks. So in addition to the equity trade, our teams need to address the currency piece in order to keep the cost of the trade to a minimum.