[ I N D E P T H | T R A N S A C T I O N C O S T A N A L Y S I S ]
spans more than a single day – a lot of those metrics go out the window ,” argues Squires .
“ We let the research team run with their testing on systematic orders but we definitely apply a liquidity profile above which we need to be more circumspect about pure quantitative analysis and that ’ s where traders can apply their own experience , instinct and dynamic knowledge of the market and reading of the market .”
With increased trust and an understanding of the roles played by the trader and data scientist , once the value of TCA is established , the data can help free up time for traders to focus on more important , higher value trades .
“ It frees up the trading desk to carry out their primary function of trading knowing that the performance numbers and TCA data are being scrutinised by an expert who will highlight patterns and trends which feedback to the trading desk and ultimately add significant alpha to the way orders are traded ,” says Richter . “ It ’ s not so much a luxury anymore but more of a necessity to have this type of resource .”
Moving forward As with anything related to technology , improvements can still be made , with the same applying to TCA . Although improvements within this function can appear to be incremental , it is still worth acknowledging that progress is being made – be it through more actionable data insights or improved usage of TCA in asset classes apart from equities .
“ Thinking about things like consolidated tape as an industry , that ' s being worked on in fixed income and progress is being made - that ' s the type of thing that would improve the value of a fixed income TCA report and the output of that report ,” suggests Bryan .
“ Trying to get to the state that we ’ re at with equities with the other asset classes may be somewhat of an impossible dream , but if people aim for that to be the golden standard , the closer we get to that , the more valuable TCA is going to be for the other asset classes .”
As TCA progresses and improves , the hope is that trade analytics can become more actionable , resulting in improved trading outcomes for its users . The advancement shouldn ’ t be viewed as an attack on a traders ’ abilities , but instead something that aids processes .
“ One thing that I think people forget is traders have ears , having the communication through our eyes and mouths is one thing , but what you hear
“[…] Getting trustworthy data is really , really challenging . That ’ s where we aim to get to .”
PAUL SQUIRES , HEAD OF TRADING , EMEA AND APAC EQUITIES AT INVESCO
around on a trading desk is harder to bring to bear ,” says Montgomery . “ The interpretation of market movement at that moment in time and the ability to filter out the noise as well is important .”
As previously noted , collaboration between traders and data scientists is essential as it has the ability to merge domain expertise with quantitative rigor , ensuring that insights derived from data actually align with the reality of current markets .
“ To turn even comprehensive data analysis into a decision about how you trade differently is really difficult - but our aspiration – as you can end up being a bit too swamped with data and unable to draw any clear conclusions . Where this can evolve is drawing on reliable , pre-trade and proprietary data in your EMS which is smart enough to make a trading recommendation based on an expected trading cost vs an execution outcome that is ‘ guaranteed ’. It should be easier than it currently is – the concept is simple – but getting trustworthy data is really , really challenging . That ’ s where we aim to get to ,” concludes Squires .
34 // TheTRADE // Q1 2024