Financial RegulationFX Best Execution PracticesFX Corporate TreasuryFX Transaction Cost AnalysisKnowledge HubMiFID iiProprietaryUncategorizedFCA: TCA ‘Unlikely’ To Fall Under Research / Market Participants Call For More TCA Disclosures

March 7, 2018by John Galanek

“The payment of third-party transaction cost analysis services is likely to be shouldered by asset managers, rather than passed on to clients, because the UK’s Financial Conduct Authority says such fees are unlikely to qualify as research costs…” (March 6, 2018)

“Transaction cost analysis (TCA) Market participants are calling for more disclosure around who pays the fees for transaction cost analysis and the way third-party providers charge for their analytics services, following a proliferation of partnerships between liquidity providers (LPs) and venues…the cost of TCA services is unclear due to the reluctance of analytics providers to disclose even ballpark figures or the terms of commercial arrangements with partners…” (February 15, 2018)

View:  The FCA statement gives a hint of guidance into the growing problem of hidden fees as cost pressures mount.  Lack of disclosure on incentive conflicts and payment structures for FX TCA has cast doubt in many institutional investor’s minds.  Claims of independent analytics are being questioned as liquidity providers pay for foreign exchange transaction cost analysis.

Bottom line: The financial world is being held accountable, investment firms, hedge funds, banks, tech providers, consultants, ECNs, and service providers, are being asked to justify their fees.  The entire financial food chain will need to demonstrate value created above fees for their clients.  Trust will need to be earned with action, and exclusive alignment on buy-side client objectives.

FX Transparency (FXT) has proudly served institutional investors exclusively with transparent fees since 2009.   The firm’s clients have added hundreds of millions to returns annually by reducing OTC FX execution costs through actionable peer group results in conjunction FXT’s currency trading expertise.  Value created to fee ratios have ranged from 10 to 700 times.  Lower trading costs continue with proper monitoring.

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