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Ivy Schmerken
Ivy Schmerken
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Buy Side Turns to TCA As Defense Against HFT - AT Summit

Asset managers are using TCA to measure performance of broker algo strategies and to detect gaming by HFT firms, according to panel at AT Summit.

As I sat through the first day of conference sessions at AT’s Buy-Side Trading Summit in Naples, Florida, I found it interesting that institutional traders are of two minds about high frequency trading. On the one hand, several traders agreed that HFT brings liquidity, and on the other hand, they are wary of being gamed or picked off.

Despite all the media hype and regulatory scrutiny of HFT, Summit panelists didn’t seem too worried about HFT dominating the stock market. Instead they are using all the tools in their boxes, including algorithms, dark pools, cash desks and DMA to seek best execution.

With high frequency trading accounting for some 60 percent of the average daily volume in U.S. stocks, buy side traders at the Summit are relying on transaction cost analysis (TCA) to make sure they are not being gamed by the high frequency traders.

Firms on the panel about advanced TCA are also adopting TCA to examine their fills and gain more transparency into the performance of broker algorithms. Firms are using TCA to asses the cost of their trades and to understand the choice of strategies that are available to the, with the idea of choosing the optimal one.

While the buy-side is using post-trade TCA to analyze their executions, pre-trade TCA was less popular because it requires a lot of work, suggested one asset management executive. Overall, TCA pushes a lot of data to the desk and to get the full story one has to take into account limits on trades, portfolio manager instructions, IPOs, and other data, said the asset management executive.

Thus, several buy side panelists at the Summit said they are tapping into their brokers to supply them with TCA tools, as well as relying on a mix of internal systems to monitor TCA daily, and hiring outside vendors to provide peer analysis and breakdowns of their trades in the market.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
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