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Pre-trade analytics and transaction cost analysis- more important than ever?
Which recent developments have made the most impact on pre-trade analytics? We are seeing significant growth and transformation of market data and analytics in order to deliver efficiencies in execution and allow better performance outcomes for our funds. This has been driven by evolving trading requirements and market forces. The growing need to process intricate datasets has been aided by AI and innovative analytics.
How are the buy-side adapting processes to improve TCA and pre-trade accuracy? Managing data quality is a common challenge experienced across the market. The lack of a consolidated tape and subsequent increasingly fragmented nature of market liquidity, has a negative effect on the accuracy of market data and the relevance for traders to utilise in their pretrade decision making.
Pre-trade analytical tools are crucial but should be there to provide an indication not an absolute answer. Recent market volatility does not give an accurate indication of‘ normal’ conditions and can therefore generate misleading indications.
Intra-trade tools and metrics are more accurate and can help to give a useful snapshot of performance and to identify short term trends. Close interaction with our fund managers is key. Being able to back up trade decisions with accurate pre- and intratrade analytics is important to maintaining these strong working relationships.
What should be prioritised when it comes to getting the best data for high-touch trades? Accurate intra-trade tools and metrics are valuable. It is important to measure the performance of the trader or counterparty during the trade process. This data can also be shared with our fund managers. It
The TRADE sits down with Sam Vaughan-Jones, senior equity dealer at Royal London Asset Management, to unpack how the buy-side is adapting in order to get the most out of TCA pretrade, what needs to be prioritised when it comes to creating the best data sets for high touch trades, and which recent developments are having the most impact on pre-trade analytics.
starts a conversation and improves the final outcome.
The decentralisation of liquidity in Europe has become heightened in the last few years. The usage of off-book mechanisms, including SI, OTC as well as‘ off-book, on exchange’ has increased significantly in this timeframe.
Also, the rise in bilateral trading is causing a challenge around understanding whether liquidity is addressable and accessible and how this data is interpreted. There is no point having volume-based metrics if you can’ t interact with a significant proportion of this liquidity.
Are TCA providers looking to incorporate more LLMs? How could this look in practice? We currently work with a third-party TCA provider. They incorporate minimal LLMs but I expect this to change markedly in the future as the benefits become apparent. There is no doubt that LLMs can act as a helpful adviser and significantly improve our productivity. However, I think it is important that we understand where the intelligence comes from. This will help us evaluate whether the intelligence can be relied on and how it can be communicated with stakeholders in trading decision making.
LLPs can also provide valuable insights from unstructured information and enhance data-driven decision-making by uncovering hidden trends and patterns.
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