Small-to-medium sized buy-side firms are falling behind in applying smart data for pre-trade decision making or post-trade analytics compared to larger competitors and investment banks.
According to a report from capital markets consultancy GreySpark Partners, smaller asset managers are struggling to compete effectively with the budgets of larger participants that can deploy resources for effective analytics across asset classes.
The report urged buy-side firms to adapt their transaction cost analysis (TCA) processes with a new form of pre-and post-trade TCA reporting that incorporates big data known as smart data to allow trading desks and clients to understand the quality and effectiveness of decision making on orders.
It added that current processes to prove value-add using broker-provided TCA reports is flawed and a transaction quality analysis (TQA) approach should be adopted, particularly in fixed income.
TQA allows asset managers to understand the impact of either a book of axed trades or a collection of block-size bonds and swaps orders on all a firm’s available liquidity on either a liquidity provider-by-liquidity provider basis or across all execution venues, said GreySpark.
“The benefits for asset managers associated with rethinking the value-add of either consuming or producing TCA reports so as to focus the objective of understanding on the quality of the information that the reports contain as opposed to a grading of the effectiveness of expected activity on a pre-or post-trade basis are clear,” added Russell Dinnage, managing consultant and head of the capital markets intelligence practice at GreySpark.
“Firms will create new trade opportunities for their clients to capitalise on, and they will optimise the capabilities of their existing trading technology outlay to optimise the performance of the whole of their trading activity at a desk-by-desk level.”