Over the past two years, a trend has been emerging amongst Vhayu's large sell-side customer base to use Velocity as a platform to build customized transaction cost analysis (TCA) tools, both to measure their own trading performance and to provide intraday benchmarks to their many institutional clients who use broker-provided algorithms.
There are many reasons why we're seeing more and more customized TCA, but unbundling of executions from research and other broker-provided services previously paid by soft dollars stands out the most. So while the cost of execution services has dropped like a stone to commodity status, many brokers are cleverly deploying what I call "Ginzu data management technology" (they can slice and dice market data quickly and easily for three easy payments of $29.95! Wait, there's more!...I digress).
Well, actually, it's not so easy. Many of these benchmarks require the ability to process and analyze over 100 gigabytes of intraday quote and trade data (Level 1 and 2) and publish the results into dozens of different trading applications. In the past, brokers could furnish TCA reports to customers on a weekly basis and it was all good. But traders are heavily scrutinized on both sides of the fence. Many fund management firms have put additional pressure on their traders by measuring their performance on a daily basis, and have tied bonus criteria around it. It has forced funds of this sort to take control over TCA at a macro level instead of trusting broker-provided reports, which usually go lockstep with the algos they provide and can be viewed as skewed.
It all boils down to who has control over the data. As a result, we're seeing more large buy-side firms acting like brokers when it comes to data management, implementing raw market data feeds and market data distribution systems, and analyzing and storing all the data for internal purposes. To stay one step ahead and prove their worth, the sell-side is stepping up the pace at which information is available to trading partners, a shift that has gone from weekly to end of day to intraday to real-time.
I spoke in April with the head of execution services at one of our biggest customers in London about his appreciation of how Vhayu allows his desk to quickly build custom benchmarks and attach them to execution reports for customer dissemination. Prior to Vhayu, he said the reports were taking up to two hours after market close (severely cutting into pub time he noted) but now take less than 30 minutes (hooray beer!). He also said that more customers were using their own sophisticated broker metrics, so to stay ahead, they were going to move to real-time soon to keep the orders flowing (pub owners rejoice).
Well, I recently saw an article about how they have indeed moved to real-time with an official stating, "traditional post-trade analysis tools were not well integrated into most client's daily workflow and so could not add optimal value to trading decisions. Providing clients with real-time trade analysis will give them live, continuously updated information while orders are still active, enabling them to adjust orders in the pursuit of better execution." That's the party line at least. We know the real reason :)
