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Execution Equalizer: Christian Hauff Talks Trade Execution Quality and TCA

“Today’s financial markets can be summed up in three words – global, fast, and complex.”

So began the recent John Lothian News Market Structure series, which looked at the evolution of financial market structure – regulation, innovation, and the debate of the role of high frequency trading.

While electronic platforms and trade algorithms have made for more efficient markets, some buyside participants believe it comes at a cost, and the cost is execution quality. Christian Hauff, co-founder and CEO of Quantitative Brokers says these same modern tools can help the buyside obtain better execution, as well as better transaction cost analysis (TCA).

Hauff’s firm researches the exchange microstructure, sets up models designed to optimize trade execution efficiency, and executes trades for its customers based on such models.

“What we’re doing is no different than what a floor broker did back in the day, and still does to this day in certain products, in terms of receiving the order and interacting with the pit,” says Hauff. The difference, of course, is that the “pit” is now an electronic order book, and the broker is a set of algorithmic execution instructions. In this way, buyside investors act in much the same way as market makers in order to optimize investment objectives.

It can be an ongoing process as well, as the broker uses transaction data sets to analyze transaction costs, both actual and simulated, in order to further optimize trade quality.

According to Hauff, “high-frequency traders and other market makers have benefited from poor execution, from either the buyside directly into that market or through other brokerage facilities or other providers.” Today’s tools aim to reduce that “slippage” of, say, $4-5 per lot, and retain it within the investor’s portfolio and P&L.

The game is on.  

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