Conference Dailys FILS in Philly Today 2019 - Wrap-up | Page 8

FILS IN PHILLY
in-depth
THE OFFICIAL NEWSPAPER OF
FIXED INCOME LEADERS SUMMIT 2019
Buy-side trading heads scorn use of
transaction cost analysis for fixed income
AXA’S LEE SANDERS AND PICTET’S CARL JAMES REJECT USE OF TCA IN FIXED INCOME MARKETS DUE TO NATURE OF PRODUCTS
COMPARED TO EQUITIES.
T
wo buy-side trading desk heads have firmly
rejected the use of transaction cost analysis
(TCA) for fixed income during a panel discussion.
While the use of TCA within the equities and
foreign exchange markets has seen significant
upticks in recent years, two heads of trading
for buy-side firms outlined why they believed it
was an unsuitable tool for fixed income trading
during an Oxford-style debate panel.
“I am driven by one thing and one thing only,
and that is the best outcome for our clients,”
said Lee Sanders, head of execution FX and UK
& Asia fixed income trading at AXA Investment
Managers. “How we measure that and prove that
we are doing that doesn’t necessarily resonate
with TCA. This is about performance, not cost
analysis.”
The nature of fixed income products means
that a methodology that was designed for equi-
ties is unfit to properly measure the outcome of
a trade, agreed Carl James, global head of trading
at Pictet Asset Management, who pointed out
that there is no regulatory obligation currently at
work for firms to adopt TCA from a compliance
perspective.
“For me the key element is that they are a
number of different instruments, whereas equi-
ties is a single instrument,” said James. “Fixed in-
come is traded in various different ways, so it is
about the process. Price is important but it’s the
process of how you get to that price that is really
important… My own personal view is that in the
equities space they have taken TCA and hung it
around their necks like an albatross. For me, it is
about process. Let’s stop saying TCA, let’s call it
best execution analysis or performance analysis.”
Defending the use of TCA for fixed income,
Vidya Guruju, product manager, fixed income
trading at Charles River, said that while there
was “no perfect solution”, pricing in fixed income
will eventually improve and TCA provided suffi-
cient intelligence on how firms can improve their
process.
Meanwhile, Alex Budny, global head of trade
analytics at State Street Global Advisors, pointed
out that different firms will have different
interpretations of TCA and that the changing
marketplace meant that the application of trade
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“Fixed income is traded
in various different ways,
so it is about the process.
Price is important but it’s
the process of how you get
to that price that is really
important.”
CARL JAMES, PICTET
data would provide opportunities to learn about
each firm’s objectives.
“We start with making sure that we can digi-
tise the trading workflow; we want to make sure
how that order comes to the desk, the urgency,
that information, that data… that is something
that disappears a lot into the ether but should
be in the record of that trade and how it is anal-
ysed,” Budny said.
However, AXA’s Sanders rebutted that fixed
income trading should not be wholly driven by
data and that the focus should always remain
on consistently delivering for clients in line with
best execution objectives.