Global investment manager Invesco announced earlier this year that it would deploy OneMarketData's OneTick platform to perform transaction cost analysis on its executions. The move comes amid a growing push among long-only asset managers to use their own customized TCA alongside what they're already getting through third-party providers in order to better manage multi-broker, and multi-asset class transactions. Advanced Trading interviewed OneMarketData senior vice president Richard Chmiel as part of a broader story on Invesco's use of OneTick.
Advanced Trading: What drove Invesco to adopt this platform, and why is customizable TCA so important to the buy side?
Richard Chmiel, OneMarketData: It's a platform for doing complete custom TCA. Prior to OneTick, they were dependent on services and brokers. Let's say they use an order management system like Charles River. Maybe they use an execution management system like Portware. Those things can do TCA but you can't really customize it. You're limited to what they can do. Similarly you can go to services like State Street or TAG – they're good services, but, again, you don't have any control over analytics. The whole idea is that they want to do independent TCA – and there still is a need for that. The board at Invesco, the investment board and the investors – they want some objectivity with their TCA.
Internally they want to do a higher level of analytics to assess the quality of their brokers and the algos they use. They also want to assess the quality of the venues that their orders are being filled on.
Advanced Trading: What are the biggest challenge facing traders when it comes to optimizing their executions?
Chmiel: The biggest challenge is that there's so much fragmented liquidity. You've got dark pools, you've got light pools. You've got brokers and broker algos. Deciding where to place an order continues to be the biggest challenge. Where is this order going to be best filled? Is it a large order of a midcap stock? And my order represents a significant amount of the average daily volume. So is it a tough order to work or is it an easy order to work? Where will that order get filled best? And making that prediction.
Advanced Trading: How will your platform help Invesco with strategy development?
Chmiel: The OneTick platform can be used to write an alpha generation model. Basically what you're looking for is ways to make money based on historical movements of individual stocks or sectors of stock. What you can do is look at the way sectors and stocks interacted historically. Given certain situations, how does a stock behave? How does this sector behave? So they write these very complex models that search for repeatable events.
Once you identify when you have these 7 factors aligned, these events occur 70 percent of the time. That is enough to build a trading model to make money. That's what they'll do. They'll look for patterns and trends by sifting through this vast, massive amount of historical data and then they'll use that to write a real-time trading model.