quality of execution achieved,”
said Paul Williams, senior director,
business development at ICE Data
Despite the lack of benchmarks
to compare trading performance in
fixed income, TCA could be a use-
ful tool or guide to inform trading
decisions and identify outliers, the
Cathy Gibson, head of fixed
income trading for the UK at Deutsche Asset Management, commented that obtaining best execution is
less of a problem as it has already
been achieved, despite upcoming
regulatory requirements. Instead,
the challenge for Gibson’s trading
desk is the ‘burden of proof’ buy-side firms must be able to provide
in a potentially non-transparent
“Best execution policies must be
in place and fit for purpose, they
must be monitored, tested and verified and they will need to evolve
with the increasingly changing
market structure,” she said.
The use of TCA, whether built
in-house or provided through a
third-party vendor, could act as a
useful tool for proving best execution, but the panel stressed that a
single TCA process will be difficult
to apply across all fixed income
“For more liquid instruments
TCA could be used to record details of price data at
during the execution process. Although I am super
cautious about advocating use of TCA for fixed income
products, it could be used to perform a high-level filter
to help identify outliers,” said Julie Beecher, an inde-
pendent consultant for the buy-side.
A study by Greenwich Associates earlier this year
found TCA is currently used by 81% of equity trading
desks, up from a year ago when 79% of desks reported
using TCA. In comparison, TCA is currently used by
just 32% of fixed income trading desks and 58% of
foreign exchange (FX) trading desks. FX TCA is ahead
of fixed income in terms of buy-side adoption, the
research said, and this was driven by a more accessible
data set for analysis and the increasing usage of algorithmic trading and electronic trading venues.
Fazila Gauhar, a senior associate at the Financial
Conduct Authority (FCA), informed delegates the UK
watchdog is agnostic as to whether firms use TCA or
not and its use is not a requirement under MiFID II.
Gibson explained despite this, TCA is a “useful aid to
capture the market environment throughout the life cycle of the trade and can help evidence best execution”.
Market participants have been urged to consider that
best execution requires firms to take into account not
just the price of a trade, but also speed, likelihood of
execution and settlement, size, or any other consideration relevant to the execution of the order.
A greater task
“The danger of shifting toward using TCA as a benchmark for best execution is it will result in behavioural
change which will not deliver the best possible outcome for clients,” Beecher added.
A report produced by TABB Group suggest
third-party TCA tools could become the new industry
standard for satisfying best execution requirements
in fixed income. A combination of in-house expertise
and third-party market analysis tools may standardise
industry practice, as regulation continues the fixed
income market evolution.
TABB Group says reliance on independent benchmarks to track execution performance and dealer
quotes or TRACE feeds for price discovery is no longer
sufficient meaning buy-siders must look elsewhere.
Pricing is central to the problem as it presents challenges for fulfilling best execution requirements, but
fixed income TCA tools are the answer the report said.
Nevertheless one thing is certain ahead of MiFID II’s
January 2018 deadline: non-equity market participants
face a far greater task than equity participants for
certain aspects of compliance.
“I am super cautious about
advocating use of TCA for fixed
income products, it could be used to
perform a high-level filter to help
JULIE BEECHER, INDEPENDENT
CONSULTANT FOR THE BUY-SIDE