Transaction Cost Analysis 2014

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The Outlook for TCA Use Among Capital Markets Participants

GreySpark Partners presents a report that examines the changing role of Transaction Cost Analysis (TCA) among capital markets participants. Transaction Cost Analysis 2014 is based on a GreySpark survey of market participants including buysides, sellsides, trading venues and technology vendors.

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The emerging TCA landscape is shaped by forces driven by buyside and sellside firms, regulations and technology. The primary findings of the report are:

  • Between 2014 and 2017, TCA solutions will continue to advance in equities, FX, listed futures and options, and fixed income.
  • TCA is already becoming increasingly prevalent as a pre-trade and real-time function of the trading flow, expanding beyond the post-trade space.
  • This is driven, among buyside and sellside firms, by client pressures and best execution requirements, cost transparency and trading electronification.

The report identifies several challenges to the effective adoption of a TCA tool, including:

  • TCA benchmarks – the relative importance of various benchmarks and indicators used in TCA is changing. All buyside and sellside respondents to GreySpark’s survey of TCA usage are planning to use pre-trade TCA to determine optimal trading strategies by 2017.
  • Organisational behaviour – users determine that it is sufficient to use only a TCA tool’s basic elements; they do not fully utilise the various indicators and benchmarks available to them
  • Data – organisational and trade data must be effectively harnessed to address demand for the multitude of data elements required for TCA.
  • Technology development – the method of TCA delivery will become increasingly interactive via on-screen reporting, while the frequency of this delivery will increase with real-time reporting experiencing a 69% rise, according to GreySpark’s survey.

Traditionally, TCA solutions are broker-provided or built in-house. However, a renewed emphasis on trading transparency is causing a rise in the number of third-party offerings on the market. These third-party offerings will increasingly be incorporated into existing systems, creating a more competitive space. Buyside and sellside firms will benefit from tools that are less costly than in house developments and analysis that is more in-depth than that provided by broker tools.

Published on: 25 Mar, 2014

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Transaction Cost Analysis – Table of Contents

  • 1.0 Transaction Cost Analysis Overview
    • 1.1. TCA is Finding New Ground in the Post-financial Crisis Landscape
  • 2.0 TCA Expands Across Asset-classes and Across the Trade Lifecycle
    • 2.1. Advance Across Asset Classes
    • 2.2. Advance Across the Trade Lifecycle
    • 2.3. Broker Assessment Criteria
    • 2.4. Industry Awareness of TCA Capabilities
  • 3.0 Effective Use of TCA Requires Firm-level and Industry-level Changes
    • 3.1. TCA Benchmarks
    • 3.2. Data
    • 3.3. Technology Development
  • 4.0 The Future: Approaching Transaction Cost Analysis Holistically
  • 5.0 Appendices
    • 5.1. Regulations Encouraging Usage of TCA
    • 5.2. Glossary of Terms
    • 5.3. Table of Figures
    • 5.4. Methodology