Transaction cost analysis (TCA) was central to an automation discussion that took place last week at the Fixed Income Leaders Summit (FILS), with panellists noting that one cannot come without the other.
TCA is central to making automated execution more fruitful by supplying insights into processes pre-trade to inform decisions, noted speakers when exploring ways to implement the right tools and skillsets to future-proof the trading desk.
Data – particularly ‘clean’ data – was highlighted as of particular importance. Ultimately, without data to back up automated strategies and their efficiency, said strategies will not be adopted.
“TCA is important for automation, but we need to know if those automated trades were executed well and whether the execution was better than if handled by a human trader,” highlighted one panellist.
Increases in automation on trading desks has meant that more real-time TCA is required, panellists emphasised, although it was noted that not all firms have the budget to build out this capability yet.
TCA should move past being more of a regulatory exercise, to something that can be practically used to improve execution, panellists noted. “Efficiency gains can be accessed through TCA; TCA helps ensure it is safe to execute in an automated manner.”
Read more: Conscious usage of TCA: Making trade analytics more actionable
When exploring automation more generally, panellists noted that with automation, some challenges do arise and there is no one size fits all solution. In larger firms with huge trading teams, one panellist argued that collaboration becomes increasingly difficult with automation.
Ensuring collaboration is efficient and that the teams are working towards the same goal as a group can be challenging, they noted.
Automation is not a one size fits all, echoed one panellist, who emphasised that automation needs to adjust on the workflow you are trying to achieve.
The panellist noted that on the private banking side for example, speed is essential and an area where automation can truly be useful. However, on the asset management side, there’s a little bit more room for execution to be slower – with automation in this instance being used differently.
“The whole value chain should be considered when automating,” said one panellist.
Scale and efficiency were labelled as the two biggest things that become available with greater automation on the trading desk.
“With the proliferation of ETFs, there’s a greater number of smaller sized tickets that need to be executed, especially in and around the benchmark points of time – whether that is 12:00, 15:00 or market on close. So being able to get those and get them executed efficiently at those benchmarks, with little slippage in time, that’s a huge advantage.”
The panellist continued to say that as a firm increases its assets under management, there’s more trades to execute which can either be done through hiring more people or through more efficient execution.
Panellists went on the acknowledge that over the past five to eight years, there has been a massive influx in the ability to automate individual bonds, allowing for improved scale and efficiency.
With growing advancements in technology and an ever-increasing amount of data becoming readily available to the trading desk, panellists concluded that automation paired with TCA will be able to help future proof fixed income execution in the coming years.