[ 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
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