Transaction Cost Analysis A-Z

Transaction Cost Analysis A-Z — November 2008

Conclusion

In this guide to transaction cost analysis, we have attempted to cover the most meaningful tools and techniques available to investors, managers and intermediaries to properly assess the quality of execution and possibly provide an answer to the difficult challenges posed by article 21 of the MiFID. Our Transaction Cost Analysis A-Z should be viewed only as a starting point and readers should actively refer to the publications and the authors mentioned in the pages of our guide. The literature on transaction cost analysis is not voluminous, but there is some, and it covers most aspects of the question. This guide therefore only provides an overview while attempting to clarify the various concepts involved. The industry has begun embracing the tools and techniques described here and we are confident that current market developments and industry changes will fuel the need for more advanced techniques. In particular, we strongly believe the better formalisation of both execution performances and risk will open the door to an unlimited area for developing systematic trading algorithms whose aim is to achieve optimal execution plans; innovative value propositions offered by brokers, exchanges and obviously technology vendors cannot be far off. Finally, we strongly believe that the role of back-office providers in the MiFID Best Execution chain is key, as they remain in a unique position to capture and process transaction data independently from venues and intermediaries on behalf of the investors or their representatives. It is only a matter of time before transaction

cost attribution is provided as a service, as portfolio performance already is. Current market conditions and the need to extract every single basis point of outperformance will contribute to this evolution. The EDHEC Risk and Asset Management Research Centre will remain involved in this evolution in the coming years and support the publication of research results obtained not only in the academic world but also by practitioners.

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An EDHEC Risk and Asset Management Research Centre Publication