A third of US buy-side equity traders are using broker-provided analyses for transaction cost analysis (TCA), according to a Coalition Greenwich report – up from 20% in April 2024.
These analyses tend to be in the form of one-off or scheduled reports.
READ MORE: Only 20% of buy-side equity traders use broker TCA
The majority (88%) of traders are outsourcing their TCA to third-party vendors, the report found – up from 80% of survey participants in April 2024. This strategy captures data from across asset managers, which respondents said allowed for an unbiased view of trading performance. Convenience, alongside low infrastructure and personal investments, were also favoured benefits.
Report author Jesse Forster, market structure and technology advisor at Coalition Greenwich, notes that established firms are preferred over new players, as clients aim to minimise the risk of introducing new technology.
“Traders tend to stick with trusted vendors rather than exploring new options,” he adds.
Just 18% of those polled were using a proprietary TCA system and only 10% said they used a proprietary/vendor hybrid system. Those opting for an in-house approach tended to be larger asset managers requiring more tailored TCA strategies, Coalition Greenwich explained. These platforms can also be integrated into existing systems, with firms able to maintain control over their data and analytics.
The report finds that almost half of US buy-side equity traders believe that TCA data is an important or very important tool when evaluating brokers.
Just 5% of traders stated that they did not incorporate TCA data into their broker evaluations – although all desks polled confirmed that they had used TCA for equity trading at some point over the last year. Close to 80% had done so on a quarterly basis.
This marks an increase from Coalition Greenwich’s April 2024 report, which noted that under 90% were conducting TCA for equity trading.
Post-trade analysis – the original purpose of TCA – is its most important feature used in equity trading, according to 90% of respondents. A further 53% cited oversight and reporting, highlighting the industry’s growing focus on compliance and regulatory requirements, while 38% stated that pre-trade modelling is a priority.
Despite its popularity, Forster observes, “Some expressed skepticism about the usefulness of pre-trade models, viewing them as primarily a means of justifying trading decisions, particularly in cases of underperformance.”
