TradeShare Limited has launched a new version of its transaction cost analysis (TCA) product. The product aims to help institutional investors and asset managers meet regulatory requirements and market demands for transparency of trading costs.
TradeShare TCA aims to help pension funds generate online reports that not only measure costs but also present users with opportunities for reducing them.
TradeShare says TCA services have suffered a number of shortcomings. Reports were expensive, and investors found them difficult to interpret. More importantly, many asset managers did not agree with the calculations used and frequently provided contradictory analysis. Attempts by pension funds to challenge such managers on execution often proved futile.
Key to the benefits of TradeShare TCA, says the company, is the greater level of detail in data collection, resulting in significantly enhanced analysis. In particular, TradeShare collects information directly from investment managers on each step of a trade, from initial investment decision through to completion. By this means, it reckons it can make accurate calculations of the effect on costs of delay and slippage, without guesswork or assumptions.
“TradeShare has spent almost two years developing its launch product,” says Andrew Caird, Managing Director of TradeShare Limited. “Much input and guidance has come directly from industry-leading heads of trading who are keen to prove they have costs under control and are ahead of their competition. The net result of our work is a TCA product with more accurate measurements and therefore more meaningful reports.”
Ken Bumpus, Pensions Officer for the London Borough of Camden Pension Scheme, was an early adopter of TradeShare TCA. He says that “for the first time in the pensions industry, schemes will now be able to compare on a like-for-like basis with other schemes and discover if they are obtaining best execution. Such information is a very powerful tool for both schemes and their external asset managers.”
Analysing transaction costs is becoming a critical part of evaluating investment and trading performance, says TradeShare. Pension schemes in the UK are encouraged by regulators and industry bodies to seek independent analysis and be proactive in reducing the costs associated with trading.
As stated in ‘Optimal Trading Strategies’, by Robert Kissell and Morton Glantz (2003), poor management of transaction costs can have a significant impact on various aspects of a fund’s performance, resulting in misallocation of funds, flawed stock selection and portfolio construction, inappropriate implementation strategies, incorrect broker selection, and poor execution overall.
TradeShare TCA is available to UK pension schemes on an annual basis at a starting price of 1,500 per portfolio.