Liquidity fragmentation and high-frequency trading flow have made the ability to analyse execution costs in real time a crucial tool for brokers in their pursuit of best execution, according to a new white paper from Fidessa.
The trading technology provider's study, entitled ”Building profit from analytics', looks at how execution cost analysis (ECA) in the US can supply the sell-side with the information required to improve margins, grow profits and develop new business.
With almost 20% of commission payments spent on execution, according to Fidessa, ECA can help to identify where performance improvements can be made, such as in smart order routing decisions. Furthermore, the complexity of execution cost analysis in today's markets means appropriate technology is required to determine how much commission is being lost to execution costs, clearing fees, back-office ticket charges, and other explicit cost points.
“The pressure is on brokerÂ¬age firms to provide solid, water-tight execution cost analysis that is readily available and easily understood,” read the paper. “In this changing environment, there is an adÂ¬vantage for a broker that can provide the buy-side with the figures to supÂ¬port transaction cost analysis, and demonstrate precisely what the costs of doing business are.”
“Variable execution cost is now playing a more significant role in client relationship management. Including ECA data in day-to-day activities is an essential tool that allows brokerage firms to develop focused strategies to control venue executions, carefully tailor new business opportunities and select client relationships that will deliver margins most beneficial to the brokerage house,” said Justin Llewellyn-Jones, chief operating officer of Fidessa US, and author of the paper.
“By monitoring costs in real time, we don't get an unexpected bill at the end of the month; instead, we're able to effectively manage our growth on a day-to-day basis,” commented Jeffrey Meyerson, managing director of Sunrise Securities, a US boutique investment bank. “Overall, using ECA helps keep our costs at a level that we're comfortable with and has freed up more of our time for client service.”