Buy-side firms are looking to use data to provide more granular analysis of the performance of an order across its life cycle in order to help boost returns as the industry faces increased competition and margin pressures.

David Murray, chief marketing and business development officer at Corvil, told Markets Media: “Legacy transaction cost analysis as an obligation has given way to greater sophistication and analysis. The buy-side is demanding more transparency and details
on execution from the sell-side.”

Corvil provides data analytics for electronic trading by capturing and analysing all message and trade traffic with sub-microsecond level precision. The firm has developed transaction quality analysis capabilities, which cover and correlates both execution outcome and performance across the order life cycle. This insight enables market participants to improve execution quality.

Optimal execution typically begins with timely and complete market data.

“You cannot put bad fuel into an engine and expect high performance,” added Murray. “Ensuring the quality and timeliness of market data is key to trade decisions as well as pricing, hedging and execution decisions. Understanding performance across the order lifecycle offers insight to optimize applications and infrastructure. Examining client and trader performance and outcomes allows firms to understand normal behaviors, inefficiencies, and risk to flow. The right analytics drive optimal execution and provide a performance advantage for our clients.”

Last year Corvil launched Intelligence Hub, which was developed over three years to provide analytics and visualisation that can be used easily in electronic trading. Corvil captures trade details such as the precise time of a transaction, how long it took, the counterparty response or outcome, etc. and then normalizes and enriches the information.

Murray explained that investors are no longer satisfied with fill rates of orders to monitor execution,
but now demand a breakdown by order type, or symbol or broker. In addition, as markets have become
more fragmented and execution choices have increased, they want to be able to identify anomalies across venues. Corvil automatically correlates data from each trading venue in real time so clients can make the best routing decisions in response to market conditions or signs of performance degradation.

“We are increasingly using artificial intelligence and machine learning to identify anomalies in real-time, rather than at the end of the day, which allows clients to take action much sooner,” he added.

For example, if the data shows that a venue is having issues executing a particular type of order, a broker or trading firm can modify an execution algo immediately to shift the rest of the order to other venues.

MIFID II
Artificial intelligence can also help firms meet the requirements of MiFID II, the regulations that went live in the European Union last year. For example, the regulation mandates that financial traders have to stay within designated order to trade limits, which can be difficult to monitor intra-day. However, machine learning can be used to predict if the ratio is likely to be breached and alerts can prompt traders to take corrective action.

MiFID II expanded pre- and post-trade transparency and best execution requirements from equities into other asset classes including fixed income, derivatives and foreign exchange derivatives. Murray said there is increasing demand for FX transaction quality analysis, and it is growing in Rates as well.

Consultancy Greenwich Associates said in a report that the need to comply with MiFID II is motivating market participants to shift trading toward electronic venues that facilitate time-stamping and reporting. Richard Johnson, vice president in the market structure and technology practice at Greenwich said in the survey that MiFID II has led to increased adoption of TCA, which measures performance against execution benchmarks.

Nearly all, 95%, of European equity traders told Greenwich they use TCA.

“Usage is increasing in fixed income and FX, but is still well below the penetration levels we see in equities, at 50% and 63% respectively,” Johnson added. “With increased focus on best execution and performance, we should expect to see an increase in TCA penetration for non-equity asset classes in the coming years.”

MARKET DATA
Last year $300m was spent on data in financial services – ranging from alternative data to pre-trade transparency to indexing to real-time market data – according to Greenwich Associates.

“2019 will see producers, distributors and consumers of data hyper-focus on gathering more of the right data, storing it in new ways, analyzing it via machine learn- ing and AI, and acting upon it more systematically than ever before,” said Greenwich in a report. “And the data obsession within financial services is not over-hyped—not even close. The amount of data will only get bigger, and it is fair to say we’ve only scratched the surface in terms of ways in which it can be applied to making money in the markets.”

This year will also be pivotal for market data technology according to a report from consultancy Aite Group on the top 10 trends institutional securities for 2019. The study said market data vendors have been trying to formulate a strategic roadmap to ensure they stay relevant and competitive on Wall Street during a shift from proprietary terminals to APIs and programmatic consumption of market data by third-party applications and analytical engines continues.

“Most vendors have been busily developing their next-generation web services APIs, cloud-based deployment and operating models, and service-oriented architectural approaches to market data distribution,” added the report. “However, Aite Group believes many vendors are going to find themselves sideswiped by a shift in technology demand for which they will be ill-prepared.”

CLIENT VIEW
A senior network engineer at a financial services firm said on the product review site, IT Central Station, that the organisation uses Corvil for latency analysis, particularly tick flow.

“We need to understand, internally, how long does it take for the DAX Future tick to leave the exchange and to exit our pricing infrastructure, which generates the prices and feeds them into the apps that the clients use,” wrote the engineer.

The firm has built a customised Corvil dashboard to show latency at each stage of the trade in order to identify where to spend time and money to improve performance. Latency information also helps improve order routing decisions.

“We can determine precisely when a venue was down and what trades were impacted,” added the engineer. “It allows us to narrow down on the problem a lot quicker. We’ve got a copy of all the messages, we know what went on at each point.”

Over the past two years Corvil has more than tripled the size of its data science and machine learning teams to bring new capabilities that satisfy market demand for solutions that enable insight-powered performance. This relentless innovation has resulted in the advancement of its analytics, giving customers the best information
to react fastest to ever-changing market conditions and thus gain a clear advantage. RegTech Analyst named Corvil in the 2019 RegTech 100 list of pioneering companies transforming compliance and risk management.