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Bloomberg unveils fixed income pre-trade TCA model

Source: Bloomberg

Bloomberg today announced the launch of a new pre-trade transaction cost analysis (TCA) model that enables market participants to assess trade cost, daily executable volume, and probability of execution, with industry leading precision.

The new model provides pre-trade analysis for investment grade and high yield corporate and sovereign bonds across the globe and offers a liquidity tree across various order sizes. In addition to assessing trade costs, clients can analyze daily executable volume and probability of execution to better inform their trading and portfolio construction decisions. Clients can also run scenario analysis by customizing their views on the bond spread and rating, which results in different cost, probability, and volume in potential trading outcomes.

The model has been calibrated based on five years of historical trade information, proprietary to Bloomberg taking a variety of factors into account. These include: side and size of the order, the real-time Composite Bloomberg Bond Trader (CBBT) bid-ask spread, the amount outstanding, the rating and currency of the bond, and an additional overlay with the bond’s age, term, and time to maturity.

PGGM, a Bloomberg Transaction Cost Analysis (BTCA) solution customer, partnered with Bloomberg’s trading quant research team to beta test Bloomberg’s new pre-trade TCA function.

“Reliable pre-trade data for fixed-income is scarce, which makes price discovery and proving best execution a challenge,” explained Jan-Theo Varkevisser, Global Head of Fixed Income Trading, PGGM. “The product provides us with trusted pre-trade price discovery and an automatic connection to post-trade analysis that ensures a valuable feedback loop for our traders to inform their trading decisions.”

This new model is integrated with BTCA, Bloomberg’s multi-asset transaction cost analysis tool, significantly enhancing the solution to deliver pre- and post-trade intelligence. BTCA is integrated into the core Bloomberg offering to harness the company’s breadth of market data, analytical tools, and trading workflows. Featuring exception-based workflow and customizable reporting, BTCA delivers information users need on demand, along with wide-ranging insight into trading-cost impact and decision support for comprehensive transaction surveillance.

“While trade cost models have become the norm in equities, developing a native model in fixed income markets is an exciting step forward to providing bond traders and portfolio managers with greater pre-trade intelligence.” said Ravi Sawhney, Global Head of Trade Automation & Analytics, Bloomberg. “The inclusion of pre-trade cost and probability estimates as part of the BTCA offering promotes market transparency and helps bond traders to make decisions that comply with their firms’ best execution requirements. We look forward to being able to offer this and more pre-trade analytics into our suite of electronic trading products in the future.”

Bloomberg subscribers can access more information via TCA<GO> on the Bloomberg Terminal. 

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