TABB Group in a recently published research note, “Execution Cost Management: Improving Margins, Strengthening Relationships,” projects that brokers who mine critical variable cost considerations with execution cost management (ECM) technology gain in three distinct ways. By lowering net trading costs, trading profit margins will improve. By sharing trade routing and costing information with buy-side clients, brokers can differentiate themselves from their competition. Third, by incorporating the data into client-profitability models, they will be better able to measure the value of each client relationship.
“Brokers who can demonstrate how execution costs are managed,” says TABB Group’s Matt Simon, research analyst and author of the report, “and combine this analysis with transaction cost analysis (TCA), will gain a more holistic analysis of servicing, including arriving at fair commission rates that will assist the buy-side in understanding how execution costs impact trading decisions.”
According to Simon, “Today’s market conditions are driving more brokers to lower net trading costs and to quantify these trade-cost savings in order to measure broker-trading performance in light of executions costs as well as quantifying the value of their client relationships. Effective ECM requires an accurate, granular dataset as well as the right tools to monitor trading decisions and track results. When properly implemented and managed, ECM solutions provide a roadmap to increased trading margins while serving as the keystone to tracking client profitability.”
The research note is available online to qualified buy-side and sell-side professionals through The William Ryan Group, Inc, an industry specialist in execution cost management systems that enable sell-side firms and brokers to streamline their variable trading cost data capture and analysis. Bob Hendrickson, president and CEO at William Ryan Group, which has arranged for permission to distribute the research, says the new TABB report “reinforces what we have long believed, that execution cost management is essential to broker profitability and managing client relationships as the trading markets have become more fragmented and competitive without increasing their transparency or reporting capabilities.”
Hendrickson agrees with TABB Group that as trading strategies become more complex, cost effective management of multiple execution paths and order routing to source liquidity will be the paramount responsibility of the sell-side. Taking that point further, he believes that a demonstrated control of variable execution costs and a commitment to execution quality will allow brokers to improve and enhance their buy-side client relationships. “As more advanced firms capture and analyze their trading data with execution cost management solutions, the impact of the analysis on broker and firm performance will cause the buy-side to focus their brokers on managing execution costs as a key component of execution quality.”
To download a copy of the TABB Group report, visit http://www.williamryangroup.com/financial-industry-software.aspx.
