[ I N - D E P T H
|
T C A ]
alternative data points to review
execution quality. Until we see
the development of a consolidat-
ed tape with a consistent data
collection process and enriched
data points to identify address-
able liquidity, which needs to be
driven by the regulator, this is the
best we can do,” Nicholls adds.
For foreign exchange, Hermes
has found limited use in deploy-
ing TCA to analyse brokers as
the desk’s FX flow is primarily
executed at the mid to save the
cost of half the spread, with stan-
dardised charges across its bro-
kers. But TCA is applied to FX to
ensure that brokers are charging
the costs agreed, reviewing which
brokers maintain the fee on
unusually large or small orders
and then using this as intelligence
on where to direct those types of
orders going forward.
The insights generated from
effective TCA as outlined above
are then used to build in-depth
scorecards, ranking the perfor-
mance of brokers, algorithms and
venue accessed for every asset
class. The broker scorecards can
also reflect additional statistics
such as settlement rates, and less
quantifiable metrics like quality
of service, are also scored.
There remains a huge amount
of future potential for TCA once
more data becomes available.
Nicholls concludes that at the
moment, the market tape reflects
where and when executions took
place. But if the tape reflected all
the liquidity available, partic-
ularly that which is posted but
unexecuted, his trading desk
would be able to conduct further
in-depth analysis, which in turn
could generate alpha.
"If you want to connect the dots, you first have to
collect the dots."
Issue 63 // thetradenews.com // 23