Buy-side, sell-side and transaction cost analysis (TCA) consultants have scored TCA providers as barely average, suggesting brokers and independent third-parties must work harder to meet today’s expectations, let alone more demanding future requirements.
The sentiments were revealed through a consultation process by OpenTCA, a consortium of sell-side firms, and execution management systems provider TradingScreen, which aims to potentially move the industry towards universal standards in their delivery of TCA.
On a scale of one to 10, where 10 indicated “fully satisfied”, TCA users awarded their providers only a 5.36.
“The results show that almost everyone expects more sophisticated TCA in the future. More than 90% of respondents were clear on that,” Jon Fatica, head of analytics at TradingScreen, said. “Clearly, the founding brokers, and a second wave of other major brokers, have committed to improving client results using TCA practices.”
Fatica said the consultation process found generally strong support for mid quote prices to be used as the basis for point-in-time benchmarks (over 65% agreeing or strongly agreeing).
“What the process has shown is that there is a desire for more transparency and consistency within TCA and general acceptance of specifics in some areas,” said Fatica. “What we need now is a broader embrace of the principles by providers of TCA services to ensure progress in its use and development which everyone acknowledges can improve trading outcomes.”
The OpenTCA initiative will now branch out from the initial group of broker sponsors to include buy-side and additional sell-side representation to establish a process for adoption of best practices.
The authors of OpenTCA’s consultation paper, which
was open for comment in September and October, represented Bank of America Merrill Lynch, Citi, Nomura and UBS.