TradeTech 2023: Optimising TCA for insight-generating analytics

Best execution analysis is a given when it comes to transaction cost analysis, however, panellists noted there are steps that need to be taken to gain true insight-generating analytics; a somewhat untapped edge that TCA can provide.

At TradeTech Europe 2023, panellists discussed how best to optimise transaction cost analysis (TCA) strategies to elevate from basic best execution analysis to true insight-generating analytics.

“It’s very easy for the trading desk to just look at straightforward TCA and implementation shortfall. We need to work out what we actually need TCA to do for us as opposed to just how it impacts the trading desk,” said Adrian Bradshaw, senior equity dealer at Invesco.

Best execution analysis is a given when it comes to TCA, however, firms need to take the steps to focus on where the incremental edge of true insight-generating analytics is actually found, as noted by the panellists.

“Insight-generating analytics is how you take TCA from basic analysis to deriving information that can be used to make improvements going forwards, such as where you did well and where you didn’t quite do so well. These are pieces of feedback that I can give to you so that you can improve in the future,” said Victoria Bryan, senior data analyst, capital markets at Northern Trust.

“What people care about at each part of the trade for insights is different and understanding which insights are important at each different part of the trade is important.”

“It’s very easy to say it’s just data,” added Bradshaw. “But we have to make sure we get the right data from the right sources – that’s we need to concentrate on alongside asking data providers what we could utilise the data for.”

TCA provides users with useful data but as some panellists noted, it is ultimately up to them how best to utilise these analytics.

“As a TCA vendor, we can provide best-in-class proprietary metrics, but it all comes down to how the buy-side are using the data. TCA and trading analytics are used at its most powerful when the output is used in a way to actually tell a clear story,” said Michael Richter, executive director, TCA at S&P Global Market Intelligence.

“Did post-trade meet expectations for the trade? If that’s a yes, then great. If not, then you have to look at the factors that influenced that. Keeping the analysis on point with what you want to achieve is the best way you can use TCA data.”

Many firms have started to seek better communication between data scientists and the rest of the firm to ensure TCA is being optimised efficiently.

“The big thing that we have noticed changing is that data scientists are now sitting on the buy-side desks as well alongside brokers and market makers,” noted Mark Montgomery, head of strategy and business development at big xyt.

For TCA to truly deliver true insight-generating analytics it is important that data scientists are working closely with trading desks to ensure there is a full understanding of the data being presented. Panellists highlighted the importance of education around TCA, because without out an understanding of the metrics, they ultimately become useless.