European fund managers will be investing heavily in developing connectivity and improving trade execution capabilities in 2004, but will spend relatively less on pre- and post-trade analysis, according to a survey conducted by London-based consultancy CityIQ on behalf of OMS vendor Macgregor.
The survey on current practices and plans for best execution in European fund managers found that roughly 50% of firms still had no automated system for aggregating data from liquidity sources or for allocating orders to the most appropriate destinations.
More than 40% of firms have no systematic method for conducting post-trade transaction cost analysis (TCA). Only 32% of firms have implemented any degree of pre-trade TCA and half of the firms still have no plans to analyse order flow by trading venue. Post-trade costs associated with clearing, settlement, custody and local taxes are rarely considered when selecting a trading venue.
Over the next 12 months, European fund managers said they would be mainly investing in system support for liquidity aggregation and order allocation as well as on further implementation of the FIX protocol and developing increased access to alternative trading venues.
Kevin Milne, EVP, Macgregor, says: "I anticipated seeing the increased investment in FIX and other alternative trading venues, but was a little surprised with the results related to TCA as it is an area being focused on by many of our clients.
"Calculating pre- or post-trade TCA can be challenging however for firms without a system that can capture and report on all trades. I suspect there would be a high correlation between those firms with OMSs and those firms conducting more formal pre-trade and post-trade analysis."