A new survey from agency broker and trading technology vendor ITG has highlighted broker evaluation as the key motivation for buy-side use of transaction cost analysis in Europe, but also observes some key regional differences.
The survey, conducted by Yossi Brandes, head of analytics, EMEA, and Ian Domowitz, CEO of ITG Analytics, noted that use of TCA had moved beyond a ‘tick-the-box’ exercise to a process used to evaluate brokers, meet compliance requirements and facilitate dialogue with portfolio managers.
Around 33% of the 48 respondents to ITG’s survey said they used TCA to measure broker performance but this was found to be more prevalent in France (42%) than the UK (24%).
UK-based asset managers were also seen to use TCA to inform decisions at the portfolio level, compared to their French counterparts. Using TCA to stimulate dialogue between traders and portfolio managers was seen by 38% of UK-based traders to be the most important factor, while in France, only one respondent to ITG’s survey thought the same. Choice of benchmarks used was identified as having a regional bias, with implementation shortfall most popular in London (55%) and percentage of volume leading the way in France (52%).
“We occasionally see a link between primary benchmarks and the frequency of TCA reporting,” the report said. “When observed, the link often is traceable to the ability to capture relevant market data to calculate certain benchmarks at high frequencies.”
In terms of overall respondents, 73% said they used TCA to help inform their execution policies – increasing to 83% for UK firms. However, ITG considered this to be lower than expected.
“While the definition of [best execution] policy remains vague, it seems clear that broker, routing, and venue evaluation should be considered,” read the report. “Viewed in the context of MiFID, the 20 percent voting ‘no’ is puzzling.”