An industry consortium, OpenTCA, composed of TradingScreen, Bank of America Merrill Lynch, Citi, Nomura and UBS, has been launched to set guidelines, highlight issues and collect buy-side feedback on Transaction Cost Analysis (TCA).
The consortium has issued a consultation paper and survey addressing guidelines for developing consistent, industry-wide standards for TCA.
The survey seeks feedback from buy- and sell-side firms in an attempt to help OpenTCA create clear guidelines for understanding the true cost of transactions among brokers and liquidity destinations like alternative trading systems.
Now, there are liquidity destinations and sell-side institutions that add a great deal of value by delivering transactions at a low-cost to the buy side, says Robert Kay, head of analytics at TradingScreen. However, it is hard for the buy side to identify the strong performers and avoid the poor performers because there are no clear industry-accepted standards for measuring transaction costs. OpenTCA is working to address this critical problem by bringing together buy- and sell-side firms to set clear standards for measurement, so there is a common taxonomy and common tools for analyzing transaction costs.
The consultation paper [click here, PDF], written in conjunction with Bank of America Merrill Lynch, Citi, Nomura and UBS, highlights specific areas where the value of analysis is significantly reduced in the absence of a common approach to trade analysis across fundamental components of TCA.
The industry generally recognizes TCA should become the cornerstone of an effective dialogue between buy- and sell-side about trading effectiveness, Kay says. However, that will only happen if there is broad agreement across the industry about what should be measured, how it should be measured and how results should be presented. Recognizing its importance, the four investment banks committed significant resources towards starting a process to build that agreement.
(CM)