John Coulter is vice president in charge of corporate strategy at Vhayu Technologies. The vendor recently added real-time transaction-cost analysis to its Velocity tick database.
On the progression to real-time TCA
We have about a dozen sellside customers using Velocity for transaction-cost analysis. We’ve had this for the past three or four years. Originally, it was probably all end-of-day reporting. They were marrying the market data analysis with their execution reports or whatever algorithmic tools they were providing for their institutional customers. At the end of the day, they would furnish a report to the customer to show the quality of the executions. As the sellside has gotten more competitive with execution services, it is going from intraday down to real time.
On buyside adoption
The true advantage of this is for the buyside. It remains to be seen if they are going to take that leap of faith. But every survey you read and every conference you go to where buyside traders are involved, they are all clamoring for TCA tools where they have control over the analysis. It will be interesting to see if they jump on this.
On the benefits of real-time TCA
Assume you are a buyside trader and you’re running a whole host of algorithms provided either by internal sources or your prime brokers, and you want to do a comparison intraday. While you are working an order, this would be a powerful tool. You can pull up a report and determine if the algorithm is working as the order is getting into the market. Then you can determine if it is working the way you want it to work or not. You can switch to another algorithm that you think will be better for these conditions. Or you can pull back altogether and start picking up the phone. That is the No. 1 advantage for the buyside.
On the No. 2 advantage
For many buyside traders, their bonus compensation is related to execution quality. So if they have their hands on the throttle more and know what is underneath the covers-In other words, what are these analyses that are running? If a broker provides a specific type of VWAP, they generally don’t give the customer the formula. So if the buyside trader has the secret sauce-knows which analytics are being run-they would have a much more unbiased feeling as to whether the execution quality is good or not.
On the use of Velocity for real-time TCA
We are seeing customers who use Velocity for intraday or end-of-day TCA taking the next step. We see such tremendous power because they can control the analytics. All these other solutions-it is really up to the broker who is providing them with the tool.
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