FIS: Today we're speaking with Craig Campestre, of execution consulting for FIS’ Fox River Execution Solutions. The topic of our Q&A is how the buy side's use of TCA reporting tools is evolving.
Today we're speaking with Craig Campestre, of execution consulting for FIS’ Fox River Execution Solutions. The topic of our Q&A is how the buy side's use of TCA reporting tools is evolving.
Craig, how should buy side firms be using TCA reporting tools, and why?
Craig Campestre: That's a great question. To understand how buy side firms are using TCA, it's important to understand the evolution of it and where it is today. In the past, TCA was used in the pension fund community to fulfill fiduciary responsibilities of monitoring their asset managers and the use of their brokers.
Currently, the investment management community is using TCA on a bigger scale to monitor and measure their own trading desk and their brokers. Their goal is to ultimately understand the correlation between market impact and alpha generation. Tools available to the buy side today have definitely gotten a lot more sophisticated. It all depends on how the buy side firm wants to use these tools to improve their overall strategies.
For example, some buy side firms are using it strictly for best ex purposes. They'll have their best execution committee meetings and go through their highest cost, lowest cost trades and dive into those trades to try and figure out where the slippage occurred.
Now, with market fragmentation and heightened regulatory pressure the buy side is starting to dive into this information to gain more visibility into their overall trading strategies and to better understand their broker's order routing practices.
The buy side wants to know what venues their brokers are hitting, fill rates, venue toxicity, venue reversion and things of that nature.
The buy side has definitely expanded their view of TCA from just a best execution product to totally understanding the relationship between brokers and the venues they're executing through.
FIS: With the fragmentation we see in the market, how is the buy side obtaining venue level data from their brokers?
Craig: That's the million dollar question on the venue side. There are a few different ways that the buy side can obtain this data.
One, they can go directly to their brokers and ask for the information, which is located within FIX tags. Certain tags will tell you the venues your broker is routing to and if your broker was acting as an agent or a principal. The buy side can simply go to their brokers and ask them to send over a report that contains all that information.
The main problem with that is, if you're executing with 30 or 40 different brokers, you're going to get 30 or 40 different reports. Then trying to understand all that data becomes very cumbersome.
The easiest thing is to go to your FIX providers directly and see if there's a way to obtain the information from across all of your brokers. Again it could become cumbersome if you are using multiple FIX networks. In addition, there is still a significant challenge in the marketplace on how uniform the data is for the buy side.
Right now, buy side firms are going to their third party TCA providers and asking for a uniform report around venue reporting associated with FIX tags. These TCA providers are starting to go to the sell side and request venue level information from FIX tags so they can provide that type of reporting to the buy side.
Currently, I believe it's mostly used for U.S. equity reporting, but I imagine that there's going to be a need to expand it globally as well.
Fox River Execution Solutions and SGN brokerage services offered through FIS' Global Trading Group within the United States and Canada are provided by FIS Brokerage & Securities Services LLC, Member NYSE, FINRA, SIPC.