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

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

Earl Monroe and Michael Wilder

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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