The $10-20 billion cost is spread out across all market participant. I see no reason to think that Vanguard wouldn't be hit at least is much as average so I'll stick with the .05% figure
You still haven't explained how an index like VTSAX is possible to front-run. There's no announced list of trades, just a portfolio that is as close to statistically equivalent to the market as possible without holding more than 20% of the securities or so.
You should really read the book Flash Boys or even just Google the many interviews with the author Micheal Lewis.
In my best "24" fashion."the following transactions occurred on 4/16/2014 between 11:45:33 AM and 11:45:34 am"
this all happens in flash
VTSAX needs to buy 100,000 shares of GE stock
The current bid for GE 300,000 at $26.00 and ask 200,000 shares is 26.01
The vanguard computer puts out a limit order GE 100,000@26.01
but instead of getting 100,000 they only get 1,000
bid 299,000 at 26.01 ask 210,000 at 26.02
new limit order GE 99,000 @26.02
This time VTSAX gets 10,000 share@26.02
bid 289,000@26.02 ask 220,000@26.03
new limit order GE 89,000@26.03
this time 20,000 shares get purchased@26.03
bid 269,000@26.03 ask 205,000@26.04
new order order GE 69,000 @26.04
Only 5,000 shares get filled
bid 264,00 @26.04 ask 300,000 @26.05
new limit order 64,000 @26.05
result
50,000 shares bought@26.049
14,000 shares @26.05
So finally VTSAX has its 100,000 shares of GE at average price of 26.042/share.
What is really going on is that 200,000 volume on both the bid and ask is fake/sham bids by high frequency traders front running traders with slower computer connections.
In reality Vanguard was the only big buyer who wanted to purchase 100,000 share and let say Fidelity wanted to sell 100,000 shares of GE along with some smaller seller. In the days before HF trading they would meet in the middle between 26.01 and 26.05 and the 100,000 share would have be exchange at $26.03, Instead in the next second the process is going to reversed Fidelity is going sell the remaining 86,000 share and being front runned. (They sold 14,000 shares to VTSAX) but instead of selling for 26.05 like they thought they'll probably end up selling the bulk at $26.00 costing Fidelity fund owners a penny or two.
Now you might think $.012 for 100,000 shares is only $1,200 big deal..
But when you consider that a one professor estimated there were something like 20,000 opportunities to front run Apple EACH DAY the money adds up.