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QSG Unveils SYNC to help Buy Side Analyze Impact Costs in High-Frequency Market

New SYNC TCA system offers pre- and post-trade analytics in a single platform.

Quantitative Services Group (QSG) released a new trade analytics platform to help institutional traders compete in an era of fragmented, high-frequency-dominated trading. The new system, known as SYNC, synchronizes QSG's post-trade analytics with a new class of pre-trade analytics and also integrates new estimate-forecast models for selecting stocks -- all on a single platform, says Tim Sargent, CEO of Naperville, Ill.-based QSG, an independent provider of global equity research and trading cost analysis tools.

One of the goals behind SYNC, according to Sargent, was to build a pre-trade model that works at the individual name level as well as for trading lists of stocks. "We did research in all those pre-trade models," he relates. "We knew they didn't work for individual names."

A key innovation in the SYNC platform is the emphasis on improved impact cost forecasts, Sargent says. "The forecast models [developed by brokers] are not held accountable," he contends. "You get a forecast and you don't see if it's a good forecast or accurate; and most of the Street pre-trade models are not expected to be accurate."

To address this issue, SYNC calculates an "error term," which finds the difference between what a model expected to happen and what actually happened from an impact-cost standpoint. "Now the buy-side trader will see the difference between the forecasted cost estimates and what actually happened or was realized," says Sargent.

"Once the error rates are calculated for a period of time -- and if they are wrong for certain types of orders -- then you could handicap the model for those types of orders by adding/subtracting the error term," Sargent explains in a follow-up e-mail. "You could then watch this adjusted forecast and even fine-tune it more if necessary." QSG can even customize a model for an institution based on the error rates, he adds.

Improving Liquidity Management

SYNC also introduces liquidity management measures to shed light on the performance of brokers, venues and algorithms. According to Sargent, SYNC calculates the Cumulative Liquidity Charge (CLC), a proprietary metric that isolates the cumulative price impact resulting from an order's individual executions. In other words, Sargent poses, if a trader buys 500,000 shares of stock on a given day through an algorithm, how did all those little pieces change the stock price?

"I want to separate what I did to the stock from what everybody else did to the stock, because that is the cost of liquidity," he says. "I can't improve the broker I was using or that algorithmic strategy if I don't have that."

Unlike other TCA providers, Sargent claims, QSG tracks all the child orders. "We identify each one of [the child orders] on the tape, and that allows us to see where the trader had to pay up for a buy order or accept a down tick on a sell order," he asserts.

QSG currently is working on integrating the CLC number and other cost-analysis metrics with a select number of execution management systems in real time, Sargent reports. 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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