THETRADETECH DAILY THE OFFICIAL NEWSPAPER OF TRADETECH 2022
Stéphane Marie- François : Exploring transaction cost analysis
How can you leverage TCA innovation to generate better efficiencies across asset classes and markets ? Equity TCA has been existing globally for a number of years and is therefore much more matured compared to TCA on any other asset classes such as FI , FX and listed derivatives .
As of today , the lack of accurate data and the need of standards is particularly pronounced for fixed income transactions and over the counter ( OTC ) markets in general . Intraday data may not be available in many derivative or fixed income instruments making the use of the TCA not relevant . The request for quote ( RFQ ) workflow on FX justifies a limited use of the TCA as most of the costs are standardised across the brokers . Nevertheless , the fact that different asset classes can have similarities in terms of liquidity profile or regulation justifies the use of the TCA . There remains a huge amount of future potential for TCA in general once more clean data is available at a decent cost . Equity TCA is the most advanced and can be taken as a reference to improve and strengthen the other assets classes , we just need to adapt the metrics for each asset classes .
Senior vice president and multi-asset trader at Unigestion , Stéphane Marie-François , dives into the world of cross-asset transaction cost analysis ( TCA ) to discuss liquidity , automation and remaining limitations in this edition of the TRADETech Daily .
How can TCA allow traders to better interact with and visualise liquidity across asset classes ? TCA has become one of the most important components for buy-side trading desks in recent years . It gives the trader a quantitative measure and a deep analysis of exactly what has happened with each and every execution . TCA gives traders insights to better assess the difficulty of their trades in pre-trade , during the execution with real-time fills , and a deep overview in post-trade . There is a big topic at the moment about real-time TCA . I think it is at a too early stage because there is yet to be a strong solution . We have tools with some providers already but they are limited in terms of scope and options . I
“ We went for partial automation as we think full automation may not be appropriate given our order flow .” think we can do better and I trust the brokers and execution management systems ( EMS ) providers to deliver in the coming months . Brokers already have tools including machine learning ( ML ) or artificial intelligence ( AI ) which feed their SOR to improve trading decisions or behaviours of their algorithms . If we could have those kinds of tools available it would help the liquidity search and avoid toxic venues , while also readjusting size to avoid adverse selection etc . We could get the information in dedicated dashboards and / or alerts directly integrated into our EMS .
Do you think institutional interest in trading cryptocurrencies and digital assets is ramping up and how do you expect TCA to be evolved to reflect this ? Definitely , the appetite is growing . The high returns generated in the past and the endless innovation around the blockchain technology and decentralised finance ( DeFi ) are two sources of expectations . This asset class can bring diversification and can generate alpha . The limitations today are around the legal framework but we are
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