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New Age TCA

Mon, 07 Oct 2013 02:00:38 GMT

A few interesting articles on Tabb Forum this week about TCA. Couldn't have said it better myself Larry!

I have developed a "high frequency TCA" technology that assists buy-side firms (and by extension sell-side) to see deeper inside their execution processes. While traditional TCA takes an aggregate approach to evaluating the performance of execution, HF-TCA aims to also inspect what happens to each child order once it is sent for execution.

But liquidity is liquidity, right? If you look at child orders, some will win (meaning the price moves favorably after the fill) and some lose. On the whole it will balance out?

Well, that is the point - it doesn't. Trade data shows that less informed traders (at high-frequency timescales) lose more than they win. This is due to a number of factors such as information leakage and adverse selection. The key to HF-TCA is measuring this effect to help you decide whether you have a problem big enough to solve.

Traditional TCA doesn't cut it on these problems since all buy-side brokers are potentially impacted by predatory strategies. Therefore comparisons among your broker panel will yield no discernible impact; they are all leaking.

In order to perform this type of analysis - more data is required. This data needs to come from the buy-side, in order to do the usual parent-child order analysis, but also to measure the increasing impact of information leakage in interacting with high-speed predatory traders.

More to follow..

by filmackayhttp://www.wikidot.com/userkarma.php?u=1099397)" />filmackay