A broad panel of buy- and sell-side market participants has called for greater consistency and transparency in trade cost analysis (TCA).
Speaking at an event in London last night aimed at making TCA more standardised and understandable, Robert Kay, head of analytics at technology firm TradingScreen, said the absence of standards was undermining the ability of market participants to assess execution performance objectively.
The event brought together members of the Open TCA consortium, which aims to stimulate debate and produce guidelines for consistent, industry-wide TCA. The group, which includes Bank of America Merrill Lynch, Citi, Nomura, UBS and technology firm TradingScreen, published a consultation paper and survey last month to identify areas where the lack of common standards reduced the value of TCA.
The current TCA landscape was confusing because different data sets, different desk configurations and different algorithms, all added to the difficulty of making sense of what happened post-trade, argued Richard Semark, head of European client trading and execution at UBS. “The typical discussion today is all about how to measure, rather than about how to improve execution. That's a massive frustration to clients and market participants alike,” he said.
Semark believed some firms picked TCA measures which made themselves look better, rather than measures which were objective. “This constantly undermines buy-side confidence in sell-side TCA results,” said Semark.
As cost pressures forced buy- and sell-side firms across the industry to place greater emphasis on TCA, market participants had come to realise trading desks could be used not just to execute trades, but to add value, Semark added.
Chris Jackson, head of EMEA execution sales at Citi, suggested a neutral, independent set of industry benchmarks might help alleviate the problem of clashing standards between brokers.
“What's interesting for us is the distribution of trades and trying to compare prices,” said Paul Squires, head of trading at AXA Investment Managers. “TCA shows us where traders are rushing too much – we can see that going just a little more carefully could have produced a significantly better result. But more clarity on venue data would also help us improve.”
The Open TCA consultation document sets out the consortium's concerns and suggestions for improving the transparency of TCA. Consultation is open until 31 October.