TCA is only one measure!

In Blog by Abdullah Hiyatt

In the complex world of fixed income trading, you might often find yourself questioning whether Transaction Cost Analysis (TCA) is the most optimal tool to support your pre-trade price discovery and decision-making needs. It’s an important and relevant question, one that I have heard echoing throughout our industry. TCA, a critical evaluation strategy that compares the execution price with a benchmark, has proven its worth in equity trading but its application in the domain of buy-side fixed income trading presents a murkier picture.

TCA’s limitation lies in its inability to effectively gauge the nuances of OTC markets, especially in fixed income. This is a terrain that’s more fragmented and less liquid than equity markets, and one that’s also marked by challenges in data quality, price transparency, and benchmark selection. In an arena where transaction costs are embedded within the price, and where individual securities often experience frequent and unpredictable price changes, the value of TCA significantly diminishes.

In response to these challenges, I’d like to introduce a new breed of measures that offer a holistic view of transaction costs, insights into price impact, trading venue optimisation, deepen liquidity analysis and risk management, while also retrospectively evaluating trading performance. At THETA, we refer to this approach as Execution Quality Analytics (EQA). On a broad scale, EQA encompasses elements such as implementation shortfall (also known as slippage), market impact, price dispersion, liquidity measures, price sensitivity measures, and post-trade analysis.

However, EQA’s promise highlights a significant problem with the lack of a universal provider delivering comprehensive and standardised data sets, measures for post-trade and best execution analysis. This gap results in the difficult and resource-intensive task of managing disparate data sources. THETA’s Apollo platform is designed to bridge this gap.

Apollo is a cutting-edge cloud-native solution that sources, transforms, and normalises real-time data from multiple venues, liquidity, establised and emerging data providers. In doing so, it presents a comprehensive, accurate picture tailored to the intricacies of fixed income trading. On the brink of integrating machine learning capabilities, Apollo promises to drastically elevate its analytical prowess, enabling traders to mine deeper insights while eliminating the need to manually sift through vast amounts of disparate data during the pre-trade discovery process.

Moreover, Apollo’s unique feature of tracking broker turnover simplifies managing relationships and evaluating broker performance. It also features robust MiFID II reporting functionality, making compliance less burdensome. As an API-first platform, Apollo easily integrates into your existing data ecosystem and can be incorporated into your trading workflow.

One of Apollo’s distinct advantages lies in its modular microservices architecture, which facilitates customisation and scalability to meet the evolving needs of fixed income trading. Apollo doesn’t just manage data, it transforms it into a competitive edge. It empowers traders with actionable insights, helping them make informed and efficient decisions.

Apollo’s value extends beyond its advanced features. It’s committed to continually adapt and innovate in alignment with the needs of the fixed income market. This commitment makes Apollo more than just a trading tool – it is a game-changer in the world of buy-side fixed income trading, geared up to navigate the complexities of this ever-evolving landscape.

Remember, TCA is only one measure – and it’s crucial to explore alternatives like EQA to get the most out of your trading strategies. Our Apollo platform is here to help you do just that.