Transaction Cost Analysis Provides Important Details About Trade Executions

Trade confirmations often don't include details that the buy side needs to conduct true transaction cost analysis and identify best execution.

What's the Remedy?
Some on the buy side are beginning to appreciate the importance of this information in measuring the true impact of their trade executions. They're demanding to know about every transaction and each child order that makes up an average price parent order. They should know the execution venue, how many shares, at what price, and if each child order was handled on an agency or principal basis and the respective performance.

Details about a client's executed trade is information a brokerage firm already has. Every execution is printed to the tape and reported to the respective exchange. It's the client's executions - they should have all the information in a confirmation format on a daily basis. There's nothing preventing brokers from giving clients what rightfully belongs to them.

After an order is executed, the buy-side trader very simply can observe what happened to the stock in the next 10 ticks, 20 ticks, 30 ticks and so on, after every proprietary trade occurred. Did it go your way or not? Where was the bid and ask?

There has to be a full understanding of what is happening on the micro level of a transaction. Without it, a buy-side trader cannot tell how well he might have done, what was missed and the real costs. Transaction cost analysis is only as good as the inputs. But without complete information, buy-side traders will not get the answers they're looking for. And the answers are there.

Joseph Wald is a cofounder and Chief Executive Officer of New York-based agency-only broker and software developer EdgeTrade.

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