Waters Rankings 2015: Best Transaction-Cost Analysis System Provider ─ ITG

ITG has won this award both years that it's been on offer.

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Earl Monroe and Michael Wilder

Transaction-cost analysis (TCA) is one of the most important business processes to have risen to prominence in the wake of the 2008 global financial crisis, although, as a discipline, it has been around for as long as investment managers have felt the need to evaluate and quantify the quality of the service they receive from their brokers.

TCA's premise is simple: It is a tool designed to provide clients (buy-side firms) and service providers (brokers) with a means of objectively measuring performance across a number of metrics, including the effectiveness of algorithms, the quality of executions according to venue/liquidity pool, and the efficacy of order-routing strategies, to ensure that future trades can be optimized based on past performance. In short, it's a bit like looking back at past experiences to ensure that future outcomes are all the more favorable.

Not only is TCA important for buy-side and sell-side firms' performance, but it also has a regulatory component in that brokers and asset managers have regulatory and fiduciary responsibilities to their clients (end-investors) to prove that best execution guidelines were followed when executing trades, as required by the Dodd-Frank Act in the US, and Mifid and EMIR (the European Market Infrastructure Regulation) in Europe.

New York-based Investment Technology Group's (ITG's) TCA platform wins this year's best transaction cost-analysis system provider category, following up last year's success, making it the only third-party technology vendor to have won this category in the two years it has been on offer.

The platform, which supports TCA calculations for both equities and FX, features a four-pronged approach that includes regular feedback so that firms can adjust their algorithms and trading strategies with the minimum of latency; ITG's proprietary Agency Cost Estimator model, designed to monitor implicit trading costs, along with spread and price impact; "slippage detection"-the difference between the price that was initially expected and the price achieved at the point of execution-so that more informed execution decisions can be made; and reports covering compliance issues and performance across trading destinations and individual brokers.

There has been a lot of talk recently about Markit preparing to launch a TCA tool for fixed-income trading, a move that is likely to ruffle feathers and raise the bar for all incumbent providers, as buy-side traders look to the fixed-income market as a source of alpha. ITG will certainly be aware of this and will be watching developments in this space closely, no doubt preparing to extend its TCA expertise to the fixed-income market, too.

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