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New regulations in the US fuel the spread of transaction cost analysis

The same tailwinds that fuelled the spread of transaction cost analysis (TCA) among institutional investors in Europe after the passage of new regulations are expected to arrive in the US in 2020, a report from Greenwich Associates indicates.

The SEC’s new Order Transparency Regulations dramatically expand the amount of information on trade routing and performance. When similar rules were passed in Europe as part of MiFID II, it led to a spike in investors’ use of TCA systems to analyse trade data for best execution and assess trade outcomes.  A similar surge has already started in the US as the new rules take shape. Data from Greenwich Associates shows the share of North American asset managers using TCA increased to 89% in 2019 from 84% in 2018.

“Based on the European example, we expect US institutions to continue adopting and expanding TCA in coming months,” said Shane Swanson, senior analyst for Greenwich Associates Market Structure and Technology and author of ‘Equity TCA Benchmarking: 2020’.

The US market still has a long way to go to catch up to Europe. As much as 95% of European asset managers are using TCA, and more than a quarter of these investors employ a dedicated TCA specialist. Only about 1 in 10 US asset managers have TCA specialists.

One sign of the growing demand for TCA in the US is the rising number of investors willing to pay for these systems with hard cash. TCA originated as a free add-on service usually offered by agency broker-dealers. “A growing 46% of firms now pay hard cash for their TCA product, rather than relying on free services or in-house tools,” commented Swanson.


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