As the complexity of U.S. equity trading continues to escalate, institutional investors leveraging transaction cost analysis (TCA) for post-trade analysis and compliance reporting and review are now looking at performance at the venue level. 

According to a new Greenwich Report released today, U.S. Equities: Venue Analysis Drives Next Generation TCA, 78% of equity traders indicate they use TCA as part of their investment process and 45% who use venue-specific TCA have made changes to their order-handling practices.

Once considered a “check box” that fulfilled basic compliance requirements, TCA is now an important component in intuitional traders’ daily lives. With the choice of executing orders on a dozen different exchanges and three dozen alternative or non-displayed venues, buy-side traders are raising the bar in terms of the precision they demand when measuring the quality of execution. 

Venue-Specific Analysis
Buy-side traders understand that the quality of their execution is heavily influenced by the venues to which their orders are routed. With the challenge of controlling all aspects of order placement across the 40 or so brokers that the buy side uses on average, venue-level TCA is a relatively new trend that is quickly gaining traction.  

While in the past it was sufficient to analyze the aggregation of trades against a specific benchmark, institutional traders are now tasked to dig deeper into performance on the venue level. 

Venue analysis is an increasingly important part of a buy-side firm’s TCA process, but 46% of institutional traders interviewed who use TCA found their platforms lacking sufficient venue analysis capabilities. “TCA vendors who integrate insightful venue analysis tools will have the opportunity to pick up market share,” says Greenwich Associates analyst Richard Johnson.