Buy-side traders are doubling down on transaction cost analysis (TCA) as a crucial tool to optimize performance and boost returns. With trading growing increasingly complex and competitive, the ability to accurately measure and minimize transaction costs has become a key differentiator for investors seeking to maximize returns.

TCA, which started decades ago as primarily a “box-checking” process to document best execution for regulators, has evolved into a crucial tool to optimize performance and boost returns. Approximately 85% of the buy-side traders taking part in a recent study from Crisil Coalition Greenwich say TCA serves as an important part of their process for evaluating the performance of their brokers.

“In a world where every basis point counts, TCA is no longer a nice-to-have, but a must-have,” says Jesse Forster, Senior Analyst at Crisil Coalition Greenwich Market Structure & Technology and author of U.S. equities TCA: The buy-side view.

Build It or Buy It, the Buy Side Needs TCA

Nearly 90% of buy-side traders rely on TCA systems provided by third-party vendors. Buy-side traders say they choose these third-party platforms for their convenience, cost-effectiveness, and scalability. “From a budgetary perspective, these platforms offer a streamlined solution without the need for significant investments in infrastructure or personnel,” says Jesse Forster.

About 1 in 5 buy-side firms have opted to build their own proprietary TCA systems. These are typically larger asset managers with complex trading strategies, multiple asset classes, and diverse investment products.

“The fact that some of the largest asset managers in the U.S. have opted to invest the resources and time needed to build out proprietary TCA platforms speaks not only to the importance of these systems, but also to their need to customize TCA to accommodate the firm’s unique trading strategies and requirements,” says Jesse Forster. “That should be an important message to third-party providers, who should be focusing on providing system flexibility and top-quality customer service.”

U.S. equities TCA: The buy-side view analyzes how buy-side trading desks are using TCA, identifies the most commonly used TCA platform types, and highlights what equity traders view as the most important features of a TCA system.

Source: Crisil Coalition Greenwich