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What’ s the main challenge when it comes to using TCA on your desk? TCA involves managing complex datasets and accurately interpreting results across various asset classes and regions, which requires advanced tools and expertise. A key challenge that comes with it is ensuring the relevancy and accuracy of data, especially for illiquid instruments or derivatives. The market data for these assets may be limited or outdated, resulting in inaccurate cost assessments and skewed execution performance evaluations.
Another challenge is the management of outliers. Extreme data points, such as abnormal broker or trader performance, can skew TCA results. Although frameworks exist to handle these outliers, they need continuous refinement to ensure reliability.
The fact that metrics are not standardised is also a pain point. Different firms calculate transaction costs differently, making it difficult to compare performance consistently. More homogeneity in the TCA frameworks could improve consistency and streamline TCA usage in the industry.
Finally, translating TCA insights into actionable strategies in a fast-moving market is an ongoing challenge, as applying insights effectively is key to improving trading outcomes. TCA is an essential tool for monitoring and continuously improving execution, but it’ s important not to over-rely on it when making trading decisions.
Is the usage of TCA growing across the buyside? The usage of TCA is growing across the buyside as more firms adopt it to optimise their trading strategies. Regulatory pressures, like Mifid II in Europe, have also intensified the need for transparency in trading costs, prompting buy-side firms to integrate TCA to comply with regulations and ensure best execution practices.
Technological advancements in data analytics and machine learning are further driving TCA ' s adoption. These technologies allow for more efficient processing of large datasets, enabling actionable insights for better decision-making.
With growing pressure to reduce costs and enhance performance, TCA’ s adoption across the buy-side is expected to continue expanding. As a result, more firms are incorporating such KPIs to measure execution performance and compare providers, seeking better execution outcomes and a competitive edge in the market.
Building a bridge between TCA and OMS providers
The TRADE sits down with Benjamin Mahe, head of high touch trading at AXA Investment Managers, to discuss what needs to be done to help ease the integration and connection between transaction cost analysis( TCA) and OMS providers, the main challenges presented by TCA on the desk, and its growing presence across the buy-side.
What should be the priority for TCA providers going forward? As more and more data is being generated by the financial markets, TCA providers should focus on extending their capacity to integrate diverse data sources such as market data, execution venues, and realtime trading data to enhance the accuracy and comprehensiveness of TCA. Ensuring the quality and timeliness of this data, while keeping the lowest possible costs for the clients, will be crucial to stay in the game.
For simpler trades, for instance on low touch equities, the focus should be on reinforcing robustness with a strong focus on reducing costs. For more high touch and complex trades, where there ' s a greater need for in-depth analysis, providers should focus on offering tools that can handle the intricacies and deliver actionable insights. Additionally, incorporating advanced analytics based on machine learning and AI into TCA platforms is expected to become a key trend. These will help better identify patterns in trading costs, enabling firms to proactively optimise trading strategies.
Lastly, it will be essential that TCA providers keep up with the growing regional regulatory standards, including detailed reporting features.
What improvements need to be made in relation to the integration and connection between TCA and OMS providers to improve the dissemination of market data? The ability to exchange data in real-time across all asset classes seamlessly, is crucial for a successful integration between an OMS and a TCA provider. Achieving this requires some degree of standardisation to ensure easy access to essential information- such as market conditions, order details, and execution performance. Ensuring that critical information is available instantly, without delays or friction to traders, portfolio managers, and control teams is key.
On the reporting side, a strong integration between an OMS and a TCA provider can allow buy-side firms to monitor both execution performance and transaction costs from a single dynamic dashboard, improving the efficiency of trading operations and supporting better decisionmaking and overall trading outcomes.
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