While Transaction Cost Analysis (TCA) remains most widely used in equities due to the availability of necessary data and standardisation being most mature in this asset class, asset managers are now increasingly utilising the strategy outside this sphere.
Ross Lancaster
According to a recent Acuiti report, fixed income and equity derivatives specifically are asset classes where surveyed asset managers confirmed they commonly apply TCA.
In addition, buy-side respondents also affirmed that TCA is increasingly being applied to commodities and listed and OTC fixed income derivatives.
Ross Lancaster, head of research at Acuiti, said: “Over the past decade, TCA has gone from a retrospective, compliance-focused process to one in which valuable insights can be driven across the trade workflow.
“As firms find more use cases for TCA, the need for high quality, real-time data also increases, which is causing challenges for some firms. However, for the firms that can achieve data quality across asset classes, there is significant value to be gained both in terms of trade optimisation as well as in alpha generation.”
While 76% of the surveyed asset managers confirm that they use TCA for regulatory and compliance purposes, use cases for TCA continue to evolve with ever-more advanced and sophisticated applications gaining traction.
Specifically, the whitepaper highlighted that in the last five years, 65% of respondents had increased the sophistication of their analysis of TCA data.
While broker selection remained a key TCA focus, half of the asset managers responded that the technology is also being used for trade optimisation, while alpha creation was cited by around a third of firms.
Looking ahead to future applications, increasingly embedded TCA within firms’ workflows appears to be within sight. As an example, Acuiti’s report highlighted that 87% of respondents recognised the importance of integrating TCA into OMS/EMS processes, despite less than half currently possessing that functionality.
Read more – Conscious usage of TCA: Making trade analytics more actionable
The whitepaper, ‘The growing sophistication of Transaction Cost Analysis’ was carried out by Acuiti in partnership with Abel Noser Solutions, a Trading Technologies company, surveying senior executives across 64 asset management firms globally.
Peter Weiler, executive vice president and managing director, data and analytics at Trading Technologies, said: “The findings in the study correlate with our own experience at Abel Noser and TT in which asset managers and other clients are looking to increase the applications of TCA across both asset classes and the trade lifecycle.”