April 2, 2024 – In an era in which every basis point counts for investors, embracing transaction cost analysis (TCA) is not just an option for institutional trading desks—it’s a strategic imperative.
Almost 90% of institutional investors globally now use TCA in equity trading, a share that has risen steadily and continuously for nearly a decade. Institutions use TCA platforms to quantify the impact of various execution decisions on both implicit and explicit trading costs and to assess the performance of their brokers.
“TCA has long since moved past its early iteration as a ‘check-the-box’ tool for best execution,” says Jesse Forster, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of Equities TCA 2024: Analyze This, a Buy-Side View. “Today, institutional investors are using TCA to refine their strategies, optimize performance and ultimately enhance their portfolio returns.”
Understanding and Minimizing Trading Costs
Almost 80% of the institutions participating in a recent study by Coalition Greenwich name post-trade analysis as the most important feature of an effective TCA platform, followed by compliance-related features such as oversight/reporting. Half of these buy-side desks say they are conducting a meaningful analysis of TCA results—as opposed to just skimming or reviewing—on a quarterly basis, widely accepted as the sweet spot for analyzing overall performance and making corresponding changes to order routing.
“As trading continues to become increasingly complex and competitive, understanding and minimizing transaction costs is paramount for investors seeking to maximize returns,” says Jesse Forster.
TCA results have also become a critical metric in institutions’ evaluations of broker performance. More than 80% of institutions that use TCA say the systems play an important part in broker assessments, with one-fifth of institutional trading desks relying on TCA exclusively for such reviews.
Platforms and Providers
The vast majority of managers (85%) rely on third-party providers to produce TCA, while 26% (generally the larger managers with $50 billion+ in AUM) use proprietary, in-house systems. Among the 80 buy-side managers in the study that use external TCA providers, 43% use Virtu Analytics’ Triton platform.
Equities TCA 2024: Analyze This, a Buy-Side View presents the full results on TCA from a Q4 2023 study that included interviews with 103 buy-side traders from around the world. The report analyzes TCA adoption rates, primary uses, frequency of use, and most important features. The report concludes with a ranking of the top TCA providers used by institutions globally.