Demand for transaction cost analysis of fixed income trades is on the rise as dealers grapple with higher costs and aggressive new regulatory guidelines that are raising the bar for transparency.
Since fixed income trading outside of government bonds isn’t nearly as fast and furious as it is in equities, most TCA reporting has been done on a quarterly or monthly basis.
But buy-side traders are likely to push for quicker reports on the heels of a sweeping measure last March by the Financial Industry Regulatory Authority to expand the Trade Reporting and Compliance Engine to include debt issued by federal agencies, government corporations, and government-sponsored enterprises.
This marks a 50 percent jump in the number of debt securities subject to TRACE reporting requirements, an increase that may spark the development of next-day, or even real-time TCA for fixed income, Ancerno president James Noser says.
Prior to instituting its new guidelines, TRACE only included real-time pricing and volume information on corporate bond trading in the secondary market. Investors will now have loads of previously unavailable market data to work with, while regulators will be able to better detect malfeasance.
The U.S. Securities and Exchange Commission is mulling similar measures for a range of asset-backed securities as well. Meanwhile the rise in trading costs in the aftermath of the global financial crisis is also boosting demand for fixed income TCA.
“With the rise in trading costs … more people are turning to reports like ours to see if they’re still getting treated well,” Noser says.
In order to piece fixed income data together for its clients, Ancerno culls information on governments, municipalities, and corporations from a number of pricing sources. Subscribers in turn send Ancerno records of their trade executions, which the company analyzes and then packages into a report.
Ancerno, a former unit of broker-dealer Abel/Noser Corp., is targeting pension foundations, endowments, asset managers, and advisory firms with the service.
“It’s a competitive environment and we’re just trying to provide a tool that reveals to the investors and advisors how well they’re doing in the competitive race for best prices,” Noser says.
Ancerno, which maintains an industry database of more than 500 global clients who trade more than $7.5 trillion in annual principal, allows users to either craft highly detailed reports or simply get a broad overview of their dealings with its fixed income TCA. Clients can also subscribe to print reports on either a monthly or quarterly basis.
“This enables people to really go down into the weeds. So they can take the 30,000 foot view if they like, or they can go right down into the weeds using this product,” Noser adds.
Since the market for TCA is not nearly as mature as it is for equities, Noser says there is room for growth. In particular, he is seeing growth opportunities in Europe on the fixed income side.