A new real-time transaction cost analysis (TCA) service from trading technology provider TradingScreen aims to offer buy-side firms greater transparency over its FX executions.
The new service will also offer buy-side traders the ability to control costs in a fragmented market environment and manage adverse market moves in a single security or across multiple asset classes. It provides graphical monitoring of executions for large orders, as well as a heat map representation of TCA data it calls the tree map.
Traditionally, FX has been a secondary concern for many asset managers, but a series of high-profile lawsuits in which asset owners and money managers have sued custodian banks for alleged overcharging has increased the spotlight on FX execution quality. Other FX TCA systems exist, but the TradingScreen offering is specifically based on providing real-time data to market participants.
“Real-time TCA helps traders identify trading venues and strategies for efficient execution at the lowest possible cost,” said Jon Fatica, head of analytics at TradingScreen. “Also, as more and more traditional and alternative asset managers start trading across asset classes and geographies, this functionality will provide an early warning system for rapid, adverse market movements.”
The growing importance of FX algos offered by the larger brokers such as Credit Suisse, Morgan Stanley and Citi is key, according to Fatica. As algo usage in FX increases, market participants will need more information to provide the algos with the context in which to trade.
“Those who use algos want some kind of feedback mechanism to appreciate how a strategy acts in the marketplace,” said Fatica. “Any way you can provide an objective assessment of how the algo is doing is a good thing.”
At the same time, as more executions are directed through execution management systems, real-time TCA allows users to monitor their net exposure across cash instruments, as well as their FX and keep track of slippage.
“Slippage is a true cash risk that is easily seen when you think about buying and selling a security in different currencies,” said Fatica. “You may take the proceeds from one and anticipate spending on the other, but when you cross the FX a day or so later, you may end up with more or less money to fund that other trade.”
Agency broker ITG released its own TCA product for FX in April, as did New York-based agency broker and technology provider Abel/Noser the same month.