This analysis is by Bloomberg Intelligence Market Structure Analyst Nicholas Phillips and Bloomberg Intelligence Director of Market Structure Research Larry R. Tabb. It appeared first on the Bloomberg Terminal.
Equity Transaction Cost Analysis (TCA) is becoming more important across the entire trading lifecycle, suggesting that traders are increasingly focused on best execution to meet regulatory requirements and achieving better outcomes for clients. More than half (59%) of European buyside traders estimate their pre-trade TCA and view a provider’s output quality as being extremely important (55%), based on data from Bloomberg’s 2023 European Institutional Equity Trading Study. Virtu is ranked the leading post-trade TCA provider by head and senior traders.
Bloomberg LP, the parent of Bloomberg Intelligence, also offers one or more of the products or services identified in this research. Any views in this note are those of the author and Bloomberg Intelligence and don’t necessarily reflect those of Bloomberg LP.
Virtu ranked no. 1; Buyside relies less on cost for a provider
Virtu is the No. 1 buyside transaction cost analysis (TCA) provider among head and senior traders in our 2023 study, with the output quality being the highest priority when it comes to choosing a TCA provider. The buyside is now looking internally or to a independent third party to help measure post-trade TCA, our study shows.
Disclaimer: Bloomberg LP, the parent of Bloomberg Intelligence, also offers one or more of the products or services identified in this research. Any views in this note are those of the author and Bloomberg Intelligence and don’t necessarily reflect those of Bloomberg LP.
Output quality of TCA provider key for buyside
The output quality of a Transaction Cost Analysis provider was most important to head and senior traders when choosing who they should use as a provider, our interviews show. For TCA to be beneficial, multiple variables — such as data cost, data availability and model assumptions — are required to give good output data, indicating why output was ranked so highly. Ease of TCA to be implemented and flexibility to customize ranked second, which is key given the number of variables. Cost was least important, which makes sense, as implementing a TCA provider correctly can potentially save firms a significant amount in trading costs.
Virtu ranks no. 1 for post-trade TCA provider choice
Virtu ranked No. 1 among participants in our study for their choice in post-trade TCA provider, at 29%. Liquidmetrix (18%), Abel Noser (13%) and Bloomberg TCA (13%) followed. Trading Technologies recently announced the acquisition of Abel Noser’s TCA business, which will likely see Trading Technologies replace Abel Noser. TCA usage is becoming more common on trading desks as buyside firms conduct their own TCA, rather than going to an external provider.
Buyside looks internally, externally to measure TCA
Transaction Cost Analysis (TCA) usage is becoming more common on buyside trading desks as firms are becoming more reliant on measuring their post-trade TCA internally. This is likely to increase as TCA becomes more important. Several senior traders stated they’re also very reliant on using independent third-party providers to measure this activity. Smaller firms are regarded as more likely to outsource TCA performance. Traders interviewed weren’t really reliant on their broker to help them measure their post-trade TCA activity.
More than half of institutions estimate pre-trade TCA
More than half (59%) of head and senior traders we spoke to estimate their pre-trade Transaction Cost Analysis (TCA). Large, medium and small buyside firms measuring their pre-trade TCA at 69%, 59% and 55%, respectively, with a small number of firms (5%) not knowing if they estimate pre-trade TCA. TCA has evolved in the equities asset class to now covering the whole trade lifecycle from predominantly being a post-trade activity.
As firms focus on best execution, they’re increasingly looking at pre-trade metrics to help choose the best trading strategy, venue and broker to optimize execution. Pre-trade TCA estimation is likely to increase.
Bloomberg
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