The Buyside Sees More TCA in its Future

Broker Trading Performance to Get Greater Scrutiny

Trade cost analysis appears to be gaining steam, according to a recent survey of the buyside conducted by Traders Magazine. Exactly 41 percent of the money managers who responded said TCA will play a greater role in their broker vote and broker selection over the next 12 months.

The largest managers in the survey–firms with more than $100 billion in equities–said measuring brokers trading costs will take on greater significance over the next year. Half of them said their TCA findings will play a bigger part in their broker relationships–both in the broker vote and broker selection process.

Interestingly, the percentage of traditional managers and hedge funds holding similar views was close: 42 percent of the traditional managers said TCA will be a bigger factor in their broker vote and selection, while 40 percent of hedge funds were also in that camp.

Still, the buyside has a range of opinions about measuring trading costs. The survey asked how trade cost analysis currently figures into managers’ thinking.  Just over a third, or 35 percent, of the survey respondents said that TCA is “not a factor” today in their firm’s broker vote and broker selection.  Trade cost measurement today, however, does play an “informal” role in the broker vote and broker selection process for 44 percent of those surveyed. They said that TCA has a role in their broker vote and selection, but it is “not quantified” in the voting. Another 21 percent are big believers in TCA. They put their full faith and trust behind numbers that trade cost analysis provides. Those respondents said TCA is “an important and quantifiable factor” in their broker vote and selection.

The anonymous electronic survey was sent earlier this month to 2,500 money managers. One hundred firms responded to the survey, yielding a 4 percent response rate. Sixty-five percent of the responses came from traditional managers, 29 percent from hedge funds and 6 percent from hedge funds or endowments.

Half the firms who responded manage less than $3 billion in equities. The rest of the respondents included firms managing $3 to $10 billion (16 percent); $10 to $25 billion (15 percent); $25 to $100 billion (10 percent); and greater than $100 billion (9 percent).

Additional details from the survey will be released later this month on and in the November issue of Traders Magazine.