Transaction-cost analysis (TCA) has been a core function of the capital markets for years. Today, its significance is greater than ever before, now that the revised Markets in Financial Instruments Directive (Mifid II) has been introduced, requiring buy-side and sell-side firms to transparently evaluate and convey criteria relating to their performance and best execution responsibilities to their clients.
Since the launch of Tradeweb TCA in 2015, Tradeweb has gathered appreciable momentum in this space to address these regulatory challenges head-on, a factor that contributed significantly to it winning the TCA category at this year’s BST Awards, following up on its win in the same category last year.
Tradeweb TCA uses in-depth data from sources such as the rates, credit, and derivatives markets and dealer prices to measure and monitor the cost-effectiveness of trading activities. It is used to benchmark clients’ trading activities at the point of trades against various data reference points. Mike Thorpe, head of cross-market solutions and relationships at Tradeweb, explains that analysis is then conducted around transaction-cost measurements to evaluate performance based on metrics such as basis points, cash values or the percentage of the bid-offer spread. Each of these metrics are then weighted on a volume, risk or trade basis.
This year, Tradeweb extended its TCA coverage to include US credit markets and swaps, in addition to incorporating AI-Price, a pricing tool powered by artificial intelligence, which leverages data from Trace, Finra’s trade reporting and compliance engine. The tool is designed to deliver accurate reference pricing for more than 10,000 US bonds, and is updated every 30 seconds.
Thorpe explains that over the past two to three years, Tradeweb has been actively working with clients to look at the breakdown of TCA measurements such as time of day, trade size and execution type, to improve their trading performance. “It’s not just a post-trade compliance tick box—it’s actively used by our clients to help analyze how they can improve performance,” Thorpe says. “More recently, we are recycling the post-trade TCA experience into a pre-trade target; for instance if clients always typically trade bunds at the midpoint, they can set that as their target for automated execution.”
This year, Tradeweb added support for uploading trades onto the Tradeweb platform, allowing clients to compare their performance against their peers. It also launched its Best Execution Monitor application on its InSite portal. Over the next 12 months, Tradeweb intends to grow its TCA coverage, with a focus on derivatives, benchmark swaps and a wide range of bonds.
Bryan Cross, who heads UBS Asset Management's QED group, joins to discuss alternative data and AI.Subscribe to Weekly Wrap emails
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