TCA on the rise in FX, despite data challenges

Buy-side adoption of transaction cost analysis in foreign exchange is outpacing fixed income in spite of the lack of a centralised data source in both markets, according to new research by Greenwich Associates

TCA on the rise in FX, despite data challenges
Kevin McPartland

Buy-side adoption of transaction cost analysis in foreign exchange is outpacing fixed income in spite of the lack of a centralised data source in both markets, according to new research by Greenwich Associates.

“If equities is where TCA is most ubiquitous and fixed income is where it is least used, then FX is somewhere in the middle. Given both FX and fixed income are OTC markets without a central source of data, there are complexities in TCA that don’t exist for equities,” says Kevin McPartland, head of market structure research at Greenwich Associates.

The report, Fixed-Income Transaction Cost Analysis Continues Strong Growth Trend, surveyed 88 buy-side traders and found that more than one-third of investors use TCA as part of their fixed income trading, up from 19% two years ago. For FX, 48% of those surveyed used TCA to benchmark their FX trading last year, up from 23% in 2011.

“There is an increasing focus on best execution in the FX market as recent scandals have driven firms to think much more about their fiduciary responsibilities to their clients. Many asset managers are now reviewing their best execution policies and TCA as a result,” says McPartland.