IHS Markit is enriching the fixed income analytics within its Trade Cost Analysis (TCA) service by adding transaction data from the Yieldbroker electronic trading platform for Australian and New Zealand debt securities and derivatives. The move seeks to bolster IHS Markit’s best execution capabilities for the fixed income marketplace, for which sourcing robust data sets for analytics can be challenging.
Under the arrangement, IHS Markit’s multi asset TCA tool, which includes independent bond pricing and liquidity data, will gain access to Yieldbroker’s six trillion of AUD and NZD market transactions volume annually.
In the wake of Dodd Frank in the US and MiFID II and Priips in the EU, regulatory focus on best execution is spreading around the globe. In Australia, Regulatory Guide 97 (RG 97), which came into force in September 2019, requires buy-side firms to disclose all fees and costs – including all direct and indirect transaction costs – that are associated with their investment products. To comply, affected firms need access to data sets that cover all the markets they operate in, and many firms are focusing on TCA to drive their best execution obligations.
While MiFID II’s best execution requirements for non-equity asset classes are causing headaches, PRIIPS and RG97 require an arrival price calculation, a standard TCA benchmark, says Michael Richter, executive director of trading analytics at IHS Markit. “So we see a number of firms leveraging TCA to meet the regulatory requirements in a very clear, logical process. On top of this, as competition increases within the industry – investment mandates for the buy side, client flow for the sell side – firms are becoming a lot more sophisticated in their approach to execution quality. Firms are seeking actionable insight and optimal execution implementation, trying to add that extra bit of alpha for the end-investor or client.”
Getting to grips with TCA
At the moment, financial services firms around the globe with best execution compliance requirements are struggling to perform TCA on many less liquid fixed income transactions, as well as on OTC derivatives. “Getting visibility on high-quality benchmark data can be an issue for the industry, and I think as the fixed income market evolves, the availability, frequency and quality of data will improve,” says Richter.
However, Richter also sees the TCA data space evolving rapidly to meet the needs of firms: “Over the next couple of years, we will start seeing more insightful benchmarks come into play on the fixed income side as the data quality and transparency increases, allowing users to look at other aspects of fixed income TCA that they may not be able to see today. We will also start to see the development of market impact models, liquidity models and sophisticated pre-trade filtering in the fixed income TCA space.”
In light of this, Richter says IHS Markit was attracted to partnering with Yieldbroker because “having the Yieldbroker workflow as part of our Australian and New Zealand fixed-income TCA solution provides straight through TCA processing for Yieldbroker executed transactions, an opportunity to standardize and validate market bid/offer data sets for RG 97 reporting purposes, a foundation of data for peer execution performance analysis” and other benefits.