Asset managers are under growing pressure to analyze every detail of every trade. This pressure is spurring demand for transaction cost analysis systems (TCA) on equity trading desks, and increasingly in other classes including FX and fixed income.

A new report from Greenwich Associates, Transaction Cost Analysis: Opportunities Within and Across Asset Classes, shows that asset managers arerelying on TCA systems to give them increased transparency into their execution and order routing in order to optimize trading performance while meeting the demands of regulators seeking documentation of best execution compliance.

“Revelations of impropriety at a number of alternative trading venues and the ongoing debate around market structure and high-speed traders have put additional pressure on trading desks to measure transaction costs at every point along the trading cycle,” says Richard Johnson, Vice President of Market Structure and Technology at Greenwich Associates.

TCA is currently utilized by 81% of equity trading desks—up slightly from 2015 when 79% reported using TCA. These usage rates suggest TCA is reaching a saturation point in equity markets. The typical buy-side equity trading desk spends about 5% of their total budget on TCA, which averages $225,000 per desk.

Growing numbers of asset managers are using TCA in asset classes other than equities. Fifty-eight percent of FX trading desks use TCA systems, and 32% of fixed-income trading desks employ TCA.

Competitive Dynamics

Although ITG remains the dominant TCA provider in equities, a dozen vendors have achieved some penetration. Many of the leading firms all couple TCA with strong execution management platforms. With trades flowing through the EMS, these providers automatically have a full transaction data set on which to perform TCA, which can be embedded directly into the EMS. This is a compelling value proposition.

Fixed income TCA is only just beginning to see adoption by the buy side. Greenwich Associates expects offerings from Bloomberg, MarketAxess and Tradeweb to become more robust in the coming years, as they tie transaction cost analytics into their execution platform. FX TCA is a few steps ahead of fixed income in terms of buy-side adoption, driven in part by a more easily accessible data set for analysis and the increasing usage of algorithmic trading and electronic trading venues. Markit, Bloomberg and ITG are the most-used vendor solutions among our study participants, with some startups such as Global Trade Analytics entering the picture.

“Going forward, TCA providers will win market share by delivering critical features like venue analysis, EMS/OMS integration, and peer comparison,” says Richard Johnson.