ITG Launches Fixed Income TCA
Agency brokerage and analytics provider ITG has jumped into multi-strategy transaction cost analysis with the launch of its TCA for fixed income offering, announced company officials.
“When you trade global equities or fixed income, many times they have a foreign exchange transaction associated with them,” explained Frank DiMarco, head of fixed income analytics at ITG. “Given our ability to measure equities and, now, fixed income, we can link those FX trades to the equities and fixed income trades.”
The firm’s fixed income offering, which has been in development for the past 10 months, initially supports sovereign debt, including inflation-linked securities, as well as corporate debt, such as investment grade, high-yield, and emerging market bonds.
DiMarco estimates that covers 90 to 100% of assets held by the firm with which ITG is working.
“We have plans to extend coverage to credit default swaps, credit default swaps indexes, interest rate swaps, and municipal debt,” he added. “Those will come in the next six months to a year.”
ITG has included several best practices into its fixed income offering that it had developed since launching its FX TCA offering six years ago.
“There was a lot that we learned regarding how to aggregate data and determine if it is good data,” said DiMarco. “Not all data from everyone is the best data. You have to figure out how to exclude certain data.”
ITG pulls its fixed income execution data from several ECNs, interdealer brokers, and regulatory and quasi-regulatory trade data feeds. However, it is not pulling data from individual dealers.
When running calculations, ITG uses approximately three years of aggregated historical data, although some sources provide as much as 10-years worth of data, according to DiMarco.
ITG processes client fixed income transactions similarly to how it evaluates equities and FX transactions. “The client sends us data, we process it overnight, and make it available via an online portal,” said DiMarco.
The only difference between the fixed income TCA offering and ITG’s equities and FX TCA offerings is that ITG has not developed a pre-trade version of its new offering.
“Our Boston-based financial engineering team is working on pre-trade analytics,” he noted. “We should bring it to market by the end of 2017 or early 2018.”
In the meantime, DiMarco notes that most early adopters of the platform have been checking their TCA results daily. “The longer you wait to review outliers, the less fresh the trader’s memory is going to be as to why they may or may not have executed at a certain level,” he noted.
Electronification of the municipal bond market also presents a large opportunity.
The success of Northbound trading showed electronic execution is way forward for the bond market.
IRS trading volumes have fragmented without an equivalence agreement.
Increased electronification has created useable and accessible real-time and historic trade data.
Members are evaluating payment-versus-payment for currencies not yet eligible for CLSSettlement.