TCA takes back seat in rush for connectivity London. 19 March 2004.
Macgregor®, a global provider of buy-side trade order management systems (OMS) and financial network services released today the key findings of a survey on
current practices and plans for best execution in European fund management companies.
The survey, conducted on behalf of Macgregor by CityIQ, a leading independent consultancy headquartered in London, concludes that fund managers will be investing heavily in 2004 to add liquidity destinations and improve their trade execution capabilities while spending relatively less resources on transaction cost analysis (TCA). Ian Hunt, Director of CityIQ outlined the key findings: "Improved fund performance, FSA regulatory changes and client pressure are the main forces driving best execution."
European fund managers said they would be investing primarily in the following initiatives over the next twelve months:
- increased access to alternative trading venues
- further implementation of the FIX protocol
- system support for liquidity aggregation and order allocation.
Roughly 50% of firms stated having no automated system for aggregating data from various liquidity sources or for allocating orders to the most appropriate destinations.
With respect to TCA the survey found that:
- greater than 40% of firms have no systemic method for conduction post-trade TCA
- only 32% of firms have implemented any degree of pre-trade TCA
- 50% of firms have no plans to analyze their order flow by trading venue
- post trade costs associated with clearing, settlement, custody and local taxes are rarely considered when selecting a trading venue Commenting on the survey results, Kevin Milne, Executive Vice President, Macgregor stated,
"I anticipated seeing the increased investment in FIX and other alternative trading venues, but was a little surprised with the results related to TCA as it is an area being focused on by many of our clients. Calculating pre- or post-trade TCA can be challenging however for firms without a system that can capture and report on all trades. I suspect there would be a high correlation between those firms with OMSs and those firms conducting more formal pre-trade
and post-trade analysis".
In December 2003 invitations to complete an on-line survey were sent to over 450 individuals representing more than 270 fund management companies. Responses were received from a broad range of firms from the UK and Europe.