An avalanche of trade data has made extracting useful information for transaction cost analysis (TCA) purposes akin to finding a needle in a haystack.

Fortunately, techniques are being developed to filter the most essential trade data embedded within the FIX (Financial Information Exchange) messages generated by trading transactions.

Among the most useful of these is Tag 30, which provides information on the market of execution for last fill, or an indication of the market where an order was routed.

“Tag 30 is the key to providing the buy side with information on venues,” said James Bryson, chief executive of Elkins/McSherry, a State Street Corp. company that provides transaction cost analyses. “The complexity of U.S. trading, with roughly 13 exchanges and 40 dark pools, is such that it’s crucial for the buy side to understand from a best execution viewpoint where their trades are being executed.”

Tag 30 (also known as the Last Market field) refers to the FIX message field that contains data about the venue at which an equity trade is executed. Tag 30 is (or can be) populated on every fill that is received on every trade of a U.S. equity in the market.

According to Bloomberg data, the average daily volume in the U.S. is about 7 billion shares and the average fill size is 230 shares; this implies there are approximately 30 million fill messages per day that can or should contain Tag 30 venue information.

“Having access to FIX data allows a TCA vendor to provide an overall analysis of brokers,” said Bryson. “The buy side doesn’t have the bandwidth and time to take all this information, digest it and communicate it. As a TCA vendor, we get the data in a normalized format and provide value-added analyses.”

Armed with this information, buy side firms are in a stronger position to fulfill their best execution mandates.
“There is some value in analyzing the Tag 30 identifier on execution report messages, especially if it is integrated with market data at the time of the executions,” said Alex Hagmeyer, U.S. equity trader at Franklin Templeton Investments. “We’ve developed analyses like this in real-time using complex event processing technology (CEP).”

With access to full venue information, buy side firms are in a better position to write their own trading algorithms or to seek greater detailed understanding of how their brokers’ algos perform.

This can, in turn, lead to a closer alignment of the algo chosen with the reason for the trade and the nature of the trade. For example, if Algo A performs best in a high volatility environment while Algo B performs best in a low liquidity environment, a firm can route trades accordingly.

While many have advocated the use of Tag 30 data for venue analysis, it doesn’t provide the full picture.

“Without analyzing the outgoing child orders sent to the various venues–which aren’t typically provided by brokers to the buyside in real-time on the wire–it’s impossible to take simple measurements such as venue fill rates,” said Hagmeyer.

Two years ago, Franklin Templeton started collecting this data systematically from its brokers for U.S. orders, and has now made it a mandatory component of its algorithmic trading.

“We leverage this data to analyze how our algorithmic order flow pings the various exchanges and ATSs, allowing us to further understand the value each venue and broker smart-order router brings to our overall execution quality,” Hagmeyer said. “It’s a constant learning process and has benefitted our trading desk the most in terms of transparency of our electronic order flow.”

Buy side firms have been increasing their requests for FIX data to boost their TCA efforts, with mixed results.

“We started by asking for Tag 30,” said Carlos Oliveira, head of electronic trading solutions at Brandes Investment Partners, in a blog posting. “Broker responses to the data request varied greatly across brokers and regions. Some of our broker relationships have been exceptionally supportive in this effort, leading to enhanced dialogue on routing practices and more meaningful, targeted market structure content calls. Though not perfect, it is a significant improvement from just a year ago.”

The FIX Protocol Ltd. (FPL)’s Buy-Side Working Groups are working to standardize the reporting of the executing venue and have created a rules of engagement / best practices document to help resolve these challenges.

The groups are working to define the usage expectations around the FIX fields that describe the final destination point of an execution, the capacity of the broker for that execution and the nature of liquidity (added or taken) for that trade.

In addition to Tag 30, other FIX fields identified for this purpose are Tag 29 (LastMkt) and Tag 851 (LastLiqudidtyInd).

“It is the opinion of the FPL Buy-Side Working Groups that these tags should be required, for the purposes of these best practices, for each and every execution where fill information is being relayed and that the information be as accurate as possible,” the FPL said in a statement.