If I remember back to my heady days as a trader, I was the unfortunate point-person on the desk tasked with cooperating with the Compliance team and scrutinizing any unusual patterns in our transactional data., This meant periodically reviewing a sub-set of client orders generated by a TCA exception report due to their variation in slippage from the client strategy benchmark, and then validating the disparity. It was a manual, labour-intensive process often involving trades from weeks or months in the past that typically had to be investigated at the individual execution fill level. For a relatively busy trading desk. it was incredibly difficult to recollect why strategies were changed and specific trading decisions made for many of our discretionary orders. Even less so without tangible evidence or quantitative reasoning.
Today, this type of compliance process is becoming increasingly automated and more sophisticated, but the challenges remain for traders. The onus is on them to rationalize and prove out their trading behaviour. The ability to demonstrate ‘Best Execution’ is multifaceted and currently relies heavily on standard post-trade TCA reports. Yet, many do not provide quantitative historical recorded evidence that validates and supports decision making and course correction in-trade. The OTAS Intraday Lingo application does.
By displaying visual and written exception analysis, Intraday Lingo helps traders easily articulate and support why certain trading decisions were made with respect to prevailing market conditions at specific times during the life of an order. Principally, Intraday Lingo demonstrates four core competencies-
- Automates control & process efficiencies,
- Proves how trade execution was in the best interest of client orders,
- Validates trader behaviour,
- Provides full audit history of course correction and market conditions.
Hargreaves Lansdown experienced several exceptional market condition events on the 6th July. These event alerts are catalogued in a textual timeline and are also annotated on the return chart. The alerts (visible through the OTAS Alerts app) provided a potential ‘call to action’ for the trader and are recorded by Intraday Lingo as the catalyst for implementing a change in strategy.
- Extreme Liquidity – Outsized build in lit market bid/offer liquidity. Opportunity to spread cross using liquidity seeking algos.
- Low Return – Idiosyncratic price return. Recalculate participation rate based on order direction.
- Wide Spread – Potential liquidity issues. Consider block trading/dark aggregators (such as Liquidnet) for sourcing liquidity and spread capture.
The ability to present such evidence is a must-have for traders under today’s regulatory environment and when populated with order fill data* provides a very powerful, post-trade, compliance friendly tool.