The vast majority of buy side equity traders rely on third-party providers to produce transaction cost analysis (TCA), a new survey has revealed.
While 85% of buy-side traders rely on third-party providers to produce TCA, about a quarter (generally the larger managers with more than US$50 billion AUM) built proprietary, in-house systems. Only about a fifth use broker-provided analyses, typically offered as one-off or scheduled reports based on orders routed to the providing broker.
The data comes from a study conducted by Coalition Greenwich, Equities TCA 2024: Analyse This, a Buy-Side View, drawn from 103 interviews with buy-side equity traders globally. Respondents answered a series of qualitative and quantitative questions about their daily workflow, broker selection and evaluation, technology platforms used, commissions, technology budgets and business practices in the US cash equity space.
Speaking to BEST EXECUTION, Jesse Forster, senior analyst at Coalition Greenwich Market Structure & Technology, said the main takeaway from the research is that any brokers who are not taking TCA seriously should start right away, because their clients do.
Respondents who had opted to use third-party providers highlighted the fact that these platforms alone capture data across multiple managers; essential for meaningful peer analyses.
“According to our conversations, building an analytics platform is the ‘easy’ part. The hard part is getting the right data. Different types of platforms can help tell different types of stories. Desks that use proprietary systems will generally only have their own internal trading data to work with. There’s no sanity check of baseline or triangulation. Third-party providers, whether broker-based or not, have sets of clean and normalised trade data across buy sides’ peer universe, allowing for easier and more meaningful analysis,” Forster told BEST EXECUTION.
Only around 50% of buy-side desks are meaningfully analysing — as opposed to just conducting or reviewing — their equity TCA data quarterly. About a 20% are analysing TCA daily and another 20% weekly, while 9% do so semi-annually or less.
At 78%, the buy side’s most important TCA feature is post-trade analysis. The buy side considers oversight/reporting second most important at 69%. Pre-trade modelling and post-trade analysis (45%) rounds out the top three most-important features.
Almost 90% of buy-side desks reported conducting TCA for their equity trading in the past year with 83% emphasising the importance of quantified TCA in evaluating broker trade performance, with 17% of them relying on it almost solely for performance evaluation. Six percent said post-trade TCA data was unimportant in their review process.
©Markets Media Europe 2024
