[ ADVERTORIAL ] alpha to their investors , which was an additional intention of the regulators . The modern best execution policy can provide a better framework for better use of different venues for different types of orders , as well as different market conditions . This does not mean an auto-pilot process , but rather a process where the combination of more targeted use of protocols and venues as well as more data — together with trade acumen — can produce the best results for investors .
With a growing focus on best execution , what is the importance of TCA ? CA : In order to better assess the effectiveness and suitability of a best execution policy , you need to first be able to assess execution quality . Measuring execution quality requires being able to look at a data set that tells you , on a relative or absolute basis , which venues or counterparties have consistently delivered the best execution outcome . This is where TCA plays a role and can shine a light on differences in execution quality .
TCA is not meant to replace best execution , but it helps asset managers craft a better best execution policy by providing some of the data for the feedback loop required to evaluate the best execution policy and make trading decisions . In other words , it is a meaningful input into the best execution process . Different orders may deserve a different execution strategy or destinations , and TCA helps asset managers quantify such differences and implement the appropriate execution strategy for any given order . TCA comes in different forms , but most institutional investors are looking for something simple that can consistently provide them with an apples-to-apples comparison
Constantinos Antoniades , global head of fixed income , Liquidnet
between venues and counterparties . TCA becomes particularly interesting when looking at results using the same or similar methodologies over a longer period of time .
Why has best execution become more science than art ? CA : There are two reasons behind this . First , there is now more data than ever before , which means you can make the process more data-driven and by default more “ scientific ”. Second , as part of the regulatory requirements , asset managers must be able to demonstrate and document actions to implement and evaluate their best execution policy . Consequently , this requires more data and a better audit trail , moving the dial away from the “ art ” end of the spectrum .
Is the new framework for best execution going to negatively impact those continuing with bilateral trading ? CA : Even though bilateral trading is still possible and can be done in several ways , whether a venue is a systematic internaliser or an OTF , MiFID II makes it a bit harder . Given that the best execution policy is now going to be more rigid and will require more documentation as to how decisions are made , many trades that were previously executed bilaterally will likely go to an electronic venue or one of the newer protocols . This is the expected outcome in the post-MiFID II environment .
What tools are available to the trader , and what part does technology play ? CA : We have a very different market structure and ecosystem today than we had 10 , or even five , years ago . The previous ecosystem was very simple , i . e . voice trading with some very small request for quote ( RFQ ) penetration for smaller orders .
In 2018 the ecosystem is far more complex and diverse , with a market structure that provides a lot of alternatives as to how you can
Issue 57 // TheTradeNews . com // 15