Transaction Cost Analysis A-Z

Transaction Cost Analysis A-Z — November 2008

III. Measuring transaction costs with post-trade analysis

whether executed on a regulated market or not. Such consolidated pan-European market data is being offered by some data vendors and new offers should appear in coming months. All these solutions in the routing and transformation of real-time market and trade data that aggregate feeds from multiple contributors and publish this information to a firm’s market data system in real-time are likely to help build relevant databases and tools for proper transaction cost measurement. Nevertheless, aggregated market data is still often restricted to equities or liquid securities. Investment firms can collect consolidated intraday market data for other securities, but the acquisition cost can be higher. It seems clear then that MiFID has huge operational and IT implications for investment firms. There is no doubt that these implications are going to strengthen the presence of technology providers in the European execution landscape.

trades may be incomplete. For example, time-stamped data can become available only from the time of the release to the broker. In this case, no data including decision time is available, with the consequence that some transaction cost indicators cannot be calculated with accuracy. Another possibility is that time- stamped information is held not in one place but in different systems and perhaps not in the same firm. • Access to intraday market data Both benchmark comparison and implementation shortfall require intraday market data, in addition to information about the trades being analysed. When several executive venues have been selected, more data and greater processing capability are required. Consequently, the firm’s ability to manage all trading data is key. Indeed, one of the most important aspects is the ability to consolidate prices from multiple and unconnected systems. Clearly, the ability to source prices and integrate them through a single system is a great advantage. • Data quality, completeness and integrity For the implementation of MiFID, the regulator has left to the undustry the choice of organising the infrastructure needed to consolidate market and reported data. As no central solution has emerged, the risk of having data reported in numerous places and incorrectly consolidated is great, resulting in an absence of quality, completeness or integrity and making the implementation of post-trade analysis impossible. MiFID indirectly addresses the above issue with harmonised post-trade public transparency requirements that facilitate aggregation for all transactions on equities,

37 An EDHEC Risk and Asset Management Research Centre Publication