Type to search

Archive Articles


Nearly all, 95%, of institutional trading desks in Europe are using transaction cost analysis but further progress is needed in fixed income and foreign exchange.

Consultancy Greenwich Associates said in a report, State of Transaction Cost Analysis 2019, that TCA is most embedded in Europe amongst  95% of  institutional trading desks, up from the 75% two years ago.

Richard Johnson, principal in Greenwich’s market structure and technology practice, focusing on equities and financial technology, said in the report: “This rapid uptake is undoubtedly due to MiFID II.”

The MiFID II regulations went live in Europe at the start of last year and extended best execution policies to new asset classes, including fixed income for the first time. In addition the transparency and reporting requirements of the regulation has led to an increase in electronic trading, which requires execution analytics. Greenwich added that as trading desks are increasingly global and firms tend to standardize processes across regions, the impact of MiFID II is likely to spread across to North America.

“For the buy side, TCA was once seen as a “tick-the-box” exercise but has become a differentiator, with many large buy-side trading desks now employing dedicated TCA professionals to help them eke out cost savings and improve performance for their institutional clients,” added Johnson.

However the use of TCA remains much higher in equities at 95% of trading desks in Europe. In contrast it is a lower 63% in foreign exchange and just 37% in fixed income.

Greenwich continued that global FX markets are highly electronic and so lend themselves more naturally to TCA. However, the lack of a consolidated tape can make it difficult to compare trade performance with every other trade in the market.

“In addition, spot FX is not explicitly covered by the MiFID II best execution obligations, so the regulatory tailwind is not as strong,” said the report. There is also no single benchmark price in the bond markets.

Richard Johnson, Greenwich Associates

“Nevertheless, the benefits that TCA can provide – including cost measurement, trade optimization and best execution compliance – will lead to a steady increase in TCA use in these asset classes,” added Johnson. “We expect TCA in FX and fixed income to grow over time, as the products mature and mindsets adapt.”

However, a survey last month from Liquidnet University found that more than half, 56%, of asset managers have seen no improvements in in fixed income TCA despite more data being reported under MiFID II.

Rebecca Healey, head of EMEA market structure and strategy at Liquidnet, wrote in the report that the buy side still finds it hard to find the data needed to enhance the execution decision-making process.

Rebecca Healey, Liquidnet

“Widespread industry frustration remains at the perceived lack of data quality available from Approved Publication Arrangements (APAs) today, alongside the challenges in interpreting best execution reports,” she said. “Participants complain of incomplete and inaccurate data, unnecessary complexity in terms of different fields to be reported and a lack of industry standardisation leading to the need to allocate valuable resources to clean up datasets before they can be used to derive real value.”

Fund managers need to invest in technology to manage increase amounts of data and the trading desk will need to learn new skills. Three quarters of respondents said collating accurate data is the priority to validate successful implementation of their best execution policy.

“Traders must be more IT aware and data driven in their approach, utilising available technology to feed analysis back into the pre-trade selection process,” said Healey.