Independent TCA still a challenge in FX market
Implementation of FX transaction cost analysis (TCA) appears to have stalled, with the impracticality of conducting analysis across every available venue encouraging many parties to rely on venues or dealers to measure execution, despite concerns over transparency and impartiality.
A shadow falls across the Bank of England
During a presentation on FX market fragmentation at TradeTech FX 2019 in September, Andrew Hauser, executive director for markets at the Bank of England (BoE), spoke of the merits of responding to the challenge of greater fragmentation by seeking more effective, robust and independent aggregation, analytical and execution tools.
One of the observations he made was that TCA data sourced exclusively from one liquidity provider are unlikely to provide an objective evaluation.
However, within weeks of Hauser’s presentation, Greenwich Associates published research that found that 53% of FX traders surveyed said they did not use TCA at all. Of those who did, 22% used venue-provided TCA reports and 15% relied on reports provided by dealers.
Greenwich considers such reports as potentially valuable, but often self-referential, since while they give the user a sense of their execution quality relative to what was available at the time on the platform or from the dealer, they do not take into account the wider market context.