Buy-side traders in the US and Europe harbour worries about the consistency of quality of their transaction cost analysis (TCA) data and the impact this has on their ability to achieve best execution.
The concerns are outlined in a new study by consultancy Greenwich Associates titled, ”Beyond Compliance: The Buy Side’s Ongoing Experiment with TCA'.
Traders questioned by Greenwich Associates were generally satisfied with TCA as a compliance tool or a method of tracking the performance of a trading desk.
“There is definitely a need for a ”check-the-box' type of product that satisfies compliance standards, and current TCA offerings seem to function well in this capacity,” said Greenwich Associates consultant Jay Bennett. “But for institutions hoping that TCA can provide them with a more sophisticated tool, our research suggests there is still much work to be done.”
A total of 45% of interviewees said assigning the correct benchmark for a trade was problematic or extremely problematic, 40% cited a lack of credibility when trying to use TCA data to demonstrate trading performance, and only one in five considered the accuracy, richness and depth of their core trading data to be consistently adequate. Furthermore, the research found that only a quarter of those interviewed tied trader compensation to TCA results.
“Traders and their managers have both warned that, because they feel TCA systems fail to take into account all the variables that affect trade outcomes, buy-side traders would game TCA systems if their compensation was tied to those results,” said Greenwich Associates consultant John Colon.
Greenwich Associates interviewed traders at 114 buy-side institutions, the majority of which had at least US$3 billion in assets under management.