There are currently appreciable numbers of transaction-cost analysis (TCA) tools available to capital markets firms, although the vast majority of them focus exclusively on the equity space. Tradeweb has bucked that trend and has built a TCA offering exclusively for fixed income, an initiative recognized by this year’s BST Awards judging panel.
Tradeweb, owner and operator of its eponymous electronic fixed-income trading platform, began looking into the TCA space some four years ago and had to address a number of challenges on the way to developing the final version of its fixed-income TCA tool. Despite having already confirmed increased demand for a specialist fixed-income TCA offering by fixed-income professionals, it was clear that copying the methodology of an equity TCA tool wouldn’t work for a number of reasons. First, because bonds are traded less frequently than equities, and second because the execution model between the two asset classes is vastly different.
Nevertheless, the firm rolled out the product in late 2015, which, in two short years, has gained significant popularity. It is integrated into Tradeweb’s InSite portal, where users can access and view data reports on their transactions in real time and various metrics that quantify execution performance. It offers a number of choices on how trades can be assessed—by size, execution protocol, sector, etc.—and a series of valuation criteria for executions, including transaction cost per million or by basis point. Tradeweb’s competitive advantage lies in that as an execution venue, it has its own proprietary pricing mechanism derived from all the dealers that provide liquidity, allowing it to compute transaction costs for each trade executed on the platform. Also, the firm has a large footprint in the “real money” fixed-income space, which means it can legitimately undertake peer analysis independently and objectively, and help define where a trader is underperforming or overperforming.
Tradeweb has tweaked the tool since its launch, now offering users execution analysis on trades that are not executed on its platform. Charlie Campbell-Johnston, head of international business operations at Tradeweb, says this enhancement has proven popular: “We have been able to provide reporting-based analysis on non-Tradeweb trades, integrating that into the user interface so that users can customize, save their searches, and do a tailored analysis,” he says.
Recently, Tradeweb included support for interest-rate swaps trades, becoming the first firm in the TCA market to do so. “The next stage is to do credit default swaps (CDSs) and exchange traded funds,” Campbell-Johnston confirms. Ultimately, the goal for Tradeweb is to provide a comprehensive TCA tool for all of the asset classes it supports on its core platform.
Liquidnet's Adam Sussman joins to discuss the Members Exchange: Why do we need another trading venue, what are the tech challenges, who will be the CEO?Subscribe to Weekly Wrap emails