Equities TCA – A Buy Side Review Of The Vendor Landscape

The Finance Hive recently hosted an Equities – Dealing with Data Digital Forum for its European members. The event allowed the participants to choose the sessions that interested them, and FOMO made it difficult to choose amongst the available sessions, which included but was not limited to; build or buy for pre-trade systems, real time analytics, mapping out the TCA vendor universe, using data to drive more efficiencies, and finally building analytics into trading desk workflow. This article is looking at the session on TCA Providers: Mapping out the vendor universe, which was well attended and independently moderated by Sally Green, The Hive’s co-founder, and Editorial Director.

The session asked the participants what systems they were currently using, and the following providers were mentioned: Bloomberg BTCA, Virtu, Best Ex, Liquidmetrix, Abel Noser and E-Flow. Only a few times did anyone mention they had an in-house system, and this was most likely using an off the shelf solution to then plug into their own quant resources (a luxury only a few firms have). The participants talked about their experience of the pros and cons of the systems they are using or previously used and how the systems are used overall. As per the Chatham House nature of the discussion, no comments will be linked to either any buy side member, or a particular TCA provider. The session provided an excellent, private platform to build up a picture of the TCA landscape and the vendor universe.

If a firm did not have a TCA provider ahead of MiFID II they most definitely did once it came in. The implementation of MiFID II saw the list of TCA vendors grow quickly and the demands on the systems increased markedly. The usage of the TCA systems in each participant’s firm were very similar; Identifying mark-out trades being the main function alongside broker and algo scoring. One common theme was that users wanted to make more use of the systems they had. Being able to monitor a trade with a duration of no more than a day was easy but trying to monitor multi day/week/month trades can prove problematic. Identifying costs for these multi day orders and block trades may be the most beneficial for firms and no one said they had an ideal solution for this currently.

Most vendors have good capability for the scheduling of reports and allow for the sharing of data across departments. This is very important for firms using their TCA providers for MAR monitoring and any other compliance functions. Whilst the scheduling of reports was good,  creating bespoke  reports was a common frustration. Many participants mentioned how they need to extract data from the TCA systems and then do their own manipulation to create required reports. Most of these reports will be wanting to use visualisation to communicate in an easily digestible way what is a very technical and complex subject matter.

An interesting point that was echoed by a few participants was the resourcing of some TCA vendors. It appears a few were caught by surprise by the level of demand during MiFID II and have not been able to follow through with the client support required. Reassuringly, this was mentioned as a past problem but is only recently changing and now clients are seeing their feedback converted into the functions and features of those respective vendors.

One area that saw a differentiation of the vendor providers was their ability to supply fill data and venue analysis. A few systems stood out as being excellent in this area and others do not appear to believe it is something they want to allocate too many resources to. A few more cynical members of the panel stated that the sell-side may be having an influence here as they will not be welcoming the provision of such data that could then be used to make the scheduled broker meetings (more) uncomfortable for them. The users who have access to the venue data did say they are unsure if they use it enough. This led to other comments about how much time should be spent on TCA monitoring and who within a firm should be doing it. Larger firms have the resources to have dedicated quants who can fully utilise the system abilities whilst others are only able to fit in the time to use the system around their trading day job. All the discussions about whether a system is being used enough and whether it is being used correctly did draw a response on the need for discipline. If you are not careful you can get overwhelmed by the data points and go down ‘rabbit holes’ (rabbit holes, can of worms, raising more questions than answers were all terms said more than a handful of times).

Not much was mentioned during the session about the vendor’s abilities to cope with the various asset classes. Some participants had different systems for different instruments, but most were using one system which was seen as multi-asset. It could be that with fixed income and FX TCA still playing catch up with what is available in the equity space there is more tolerance for any deficiencies any system or internal process may have.

A strong take away from the session was it is best to buy rather than build. The resources required to recreate what has taken lots of time and investment is not sensible. Buying off the shelf and then doing your own manipulation and visualisation is perhaps needed until an affordable system stands out as the ‘must have’ TCA vendor.

It appears that the TCA systems used have evolved with their users. They have gone from being merely outlier report generators and broker scoring systems to become a more integrated feature of the trading desk. They are used intra-day, pre and mid trade to help drive decisions for the better outcomes that every desk is seeking. No system appears to have a Holy Grail solution, and more is to be done whether it be on the side of the system providers or the system users. More of which will be discussed in an opinion piece to be published soon.

If you wish to discuss this topic further, please feel free to contact Isabella Grassick, Customer Success Manager for Equities & FX