As new regulations and changes to market structure make fixed-income markets more complex, a growing number of institutional investors are adopting transaction cost analysis to assess the effectiveness of trades, according to a report from Greenwich Associate.

The report presents the results of a study in which 88 buy-side traders across the globe working on fixed-income trading desks were interviewed. More than one-third of these investors now use TCA as part of their fixed-income trading process, up from 19% just two years ago.

Investors have long viewed the total cost of trading for OTC products to be nothing more than the bid-ask spread. “As regulations push for greater transparency from the buy side and electronic trading and central clearing move into formerly phone-based markets such as corporate bonds, government bonds and swaps, a more complex analysis will be required to ensure the execution achieved—even if at the best prevailing price—was, in fact, the best choice,” said Kevin McPartland, head of market structure and technology research at Greenwich Associates, in a release.

The market for fixed-income TCA is roughly split between vendor-provided and internal products. Greenwich Associates expects firms that are TCA leaders in other asset classes—such as ITG, and trading platforms such as MarketAxess and Tradeweb, to innovate in fixed income in coming months.

“This is a market ripe for competition, as economic and regulatory factors continue to drive investors to integrate TCA into their investment process,” said Greenwich Associates analyst Kevin Kozlowski.

Greenwich Associates expects use of TCA by fixed-income investors to grow similarly in the FX market, with more than half using fixed-income TCA within the next two years. While it seems unlikely that either fixed-income or FX TCA will reach levels of adoption seen in exchanged-traded equities markets, the increasingly electronic nature of both puts them on similar paths.

The wildcard remains central bank policy. If rates rise quickly and a few basis points start to matter less, spending money on TCA technology might look less desirable. Nonetheless, investors are more sophisticated than ever and will continue to demand fees are spent intelligently, fueling the continued proliferation of TCA in fixed income.