Buy-Side Technology Awards: Best Buy-Side Transaction Cost Analysis (TCA) Tool─Markit

Before this year's awards, those familiar with Markit might have questioned its TCA credentials: Compile a list of the leading TCA providers and it would be unlikely that Markit would top that list─but take a look behind the Markit façade and you'll discover Trade EQM, acquired from Quantitative Services Group in November 2011, providing Markit with a sophisticated and mature offering and an impressive client roster in one fell swoop.

Markit's Trade EQM offers users a range of analytics and decision-support tools to assess the quality and effectiveness of their equity and foreign-exchange (FX) trading activity. It features a proprietary algorithm utilizing complex-event processing (CEP) technology that matches each execution to the prevailing quote in 81 countries and 175 exchanges; it decodes FIX messages to provide actionable broker performance and venue-level analysis; it enables buy-side firms to identify the strategy and the algorithmic parameters to evaluate the effectiveness of brokers' algorithms and venues for similar orders and market conditions; and it features a forecasting model, averaging one basis point or less, for large- and mid-cap institutional orders.

The TCA market is a highly competitive one, featuring a mix of products on offer from brokers and third-party technology providers. Advantages offered by Markit's Trade EQM include scrutinizing tick data and treating each fill as a discrete event, thereby isolating an order's impact cost from the price impact of competing trades; the ability to compare an order's percentage of adverse ticks─an uptick on a buy or a downtick on a sell order─to that of the overall tick structure of the stock during the trade; and a forecasting technique that considers the nonlinearity of order size, the changing nature of bid-ask spreads, and the nature of a stock's tick risk.