Investment Technology Group and Abel/Noser Corp. both acknowledge concerns by buyside firms about the practicality of transaction cost analysis. The firms told Traders Magazine that a recent Greenwich Associates survey was fair in the questions it raised about how buyside firms use TCA reports and analytics.
"The survey is definitely in the ballpark with respect to the current uses of TCA," said Ian Domowitz, managing director of network products, analytics and research at ITG. "The split between people using TCA for oversight [of broker-dealers’ trading] and to evaluate internal operations is spot on."
The firms said TCA is evolving as technology and traders’ needs change. Both agreed with the survey that real-time TCA is becoming more critical to customers. "We believe in real-time TCA and helping traders with course correction as market conditions change," Domowitz said. ITG currently offers real-time TCA. Peter Weiler, executive vice president of global sales at Abel/Noser, said his firm is introducing a real-time TCA product. "We need to get to the point where we can make more concrete recommendations about how to change behavior," Weiler said. "Making actionable recommendations is where all the work comes into focus."
In response to criticism about the difficulty of understanding and applying TCA results, both firms said they continually strive to make the data they marshal in their reports easier to use. Abel/Noser said it produces different reports for different constituencies within an organization. ITG does too, customizing many TCA reports. ITG also said it would also be happy to incorporate PM instructions into TCA reports "as soon as buyside firms send us that information."
Both executives agreed with the Greenwich report that TCA should be more widely used within the investment process. In response to the survey’s suggestion that TCA focus on outlier events, both firms said this has been standard operating procedure for a long time. The two TCA providers are also interested in moving into new asset classes, although that has been slow going.
Although the report did not stress this, ITG and Abel/Noser said clients are increasingly asking for reports that compare algorithms across brokers. Their customers want to know which algos work better under which market conditions for algos pursuing, say, a VWAP or an implementation-shortfall strategy.
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