SPREAD AND MARKET IMPACT COSTS

Values are displayed in both basis points and cash amounts (the default is USD but other currencies are possible). Positive values represent costs incurred by the client (i.e. spread paid). When aggregating over multiple trades, average values are volume weighted. Total cash amounts for multiple trades are also available. The measurement is done with respect to the completion, or execution, time stamp as default.

A) ACTUAL SPREAD COSTS

Spot

Cost arising from the spot FX component of the FX trade or portfolio in question, calculated by taking the difference between the executed spot rate for the trade and the market spot mid-price estimated for the closest time stamp to the trade.

Forward

Cost arising from the forward FX component of the FX trade or portfolio in question. The actual executed forward points are computed and compared to the market mid forward points for the tenor for the closest possible time stamp.

Bond

Spread cost for bonds measured as a spread to mid, measured as close to the trade time stamp as possible. The priority is always to use a tick price for the specific security, although if tick data is not available for a given ISIN, then alternative methods may be deployed, including interpolating from a yield curve or using losing quote data.

Future

Costs arising from futures trades in the portfolio, calculated by taking the difference between the executed futures price for the trade and the exchange published mid-price estimated for the closest time stamp to the trade.

Total Spread

Total actual cost for the trade or portfolio, calculated by summing the Actual Spread Costs in USD. When viewed for portfolios, the bp cost value is a volume weighted average.


B) EXPECTED SPREAD COSTS

Spot Expected Spread

Estimated spot spread cost for the FX trade, represented as a cost in basis points (spread to mid), thereby taking into account size, time of day, liquidity etc. Expected costs are computed using the BestX fair value cost model, more details available upon request.

Forward Expected Spread

Estimated spread cost for the forward point component of the FX trade, represented as a cost in basis points (spread to mid), thereby taking into account size, time of day, liquidity etc. Expected costs are computed using the BestX fair value cost model, more details available upon request.

Please note that the expected cost model for Fixed Income (Bonds and Futures) is in development.

C) IMPACT COST

Actual Impact

Estimate of actual market impact, measured as the difference between the executed rate and the top of book bid/offer, using market data as close to the execution time stamp as possible. Thus, this value is a sub-component of Actual Spread, although this value is floored at zero to avoid negative market impact values. Separate values are computed for Spot FX, Bonds and Futures.

Spot Expected Impact

A measure of the expected market impact for a given spot FX trade or portfolio, as estimated by the BestX fair value cost model.

Please note that the expected impact cost model for Fixed Income (Bonds and Futures) is in development.


NETTING BENEFIT

An estimation of the cost saving realized through the netting of FX orders and trading as a Block. The metric uses the BestX expected cost model to compare the expected cost of trading the gross set of orders vs the net Block trade. Only present if the portfolio has Block trades linked with a Parent Order ID. N.B. This value is only relevant to FX portfolios.


RANGE OF THE DAY

A simple graphical representation is provided of where the executed price for a given trade falls within the high-low price range witnessed during that trading day, which runs from midnight to midnight GMT.


PERFORMANCE VS BENCHMARKS

A positive value implies the client execution price is better than the benchmark value, i.e. outperformance. All the benchmarks are measured against the client all-in rate where a forward rate is provided, with the exception being algos, which are benchmarked against the spot component.

Risk Transfer Price Benchmark

Represents performance against the fair value risk transfer price of the trade as estimated by the BestX Fair Value Risk Transfer model. N.B. This values is measured at the market arrival time stamp if available, otherwise it is measured at the execution time stamp. Only available for FX currently.

TWAP Benchmarks

TWAP benchmarks, computed from independent mid-market data, are provided showing trade performance over various timescales:

  • 1 Hr TWAP – average mid-price over the hour following the trade completion time

  • Interval TWAP – average mid-price while the trade was active (used for trades executed over a window of time, such as algos)

WMR Fix

Performance against the official FX WMR fixings is also available for those users that subscribe to the Reuters WM benchmark data feed.

Arrival Price Benchmark

Performance against the observed arrival mid, snapped at the supplied market arrival time stamp for a given trade, if available.

For a parent trade all children are revalued at the market arrival time stamp of the parent which may either be specified explicitly or is taken as the arrival time stamp of the first child order.

Please note, if a market arrival time stamp is not supplied, the benchmark is computed relative to the completion time stamp.

Start & End of Day

Performance against the observed mid at market open and close. Only used for Fixed Income (Bonds and Futures).

Far Touch

Performance against the observed best bid or offer at the closest time stamp to execution, depending on whether the trade was a buy or sell. So, if the trade was a buy, the Far Touch benchmark would be the difference between the traded price and the observed offer price. Please note, that unlike the Impact Cost measure, which is similar, this value is not floored at zero.

Sharpe Ratio

Simply the average benchmark performance in basis points divided by the standard deviation of benchmark performance in basis points.


OTHER METRICS

Pre- and Post-Trade Revaluation

Analysis of the market moves in the appropriate currency pair or security, prior and post the execution time. A comparison of the client price paid with mid at intervals of +/- 1 seconds, 30 seconds, 5 minutes and 30 minutes is provided and can be used as additional information regarding potential market footprint and impact. For FX, an additional option is available that provides millisecond granularity. For Fixed Income, longer time scales are used, with revaluation points of 5 minutes and 1 hour.

A positive value implies the client execution price is better than the benchmark value.

Signaling Risk Measures

Only computed for Algo trades where child order data is available.

BestX Signaling Risk

This score is a measure of the autocorrelation of the individual child order execution prices with the underlying market, and is bounded between −1 and +1. The higher the number, the higher the relative Signaling risk.

BestX Signaling Score

This metric is a form of Sharpe Ratio estimated over the execution window, and can be thought of as a form of ‘signal to noise’ ratio.

A high BestX Signalling Score number indicates that the participation rate of the order was too high relative to the underlying market, i.e. the market has not digested the order well, potentially resulting in information leakage. As with the BestX Signalling Score it is best used as a means of relative comparison between trades.

Fill Speed

The average time in seconds that the algo has taken to fill 1m USD notional equivalent.

Fill Info

Child fills plotted over the life of the algo, versus prevailing market bid offer spread. The size of the bubble represents the notional size of the child fill. Cumulative average fill price of the algo is also plotted, together with the cumulative volume.

Implementation Shortfall

A post-trade metric to show the slippage versus a range of time stamps defining the trade lifecycle.

The application currently supports 4 time stamps per trade:

1.       Order Origination (i.e. when the portfolio manager decides to trade)
2.      Desk Arrival (i.e. when the order arrives with the Execution Desk)
3.      Order Submitted (i.e. when the order is first submitted to the counterparty or market directly)
4.      Order Completed (i.e. when the order is fully filled)

Depending on the EMS/OMS source, other time stamps could be available (Order Approved Time, Market Arrival, Quote Time, Quote Acceptance).

The chart displays the difference in executed price and the prevailing market mid for each of these time stamps, showing the ‘shortfall’ or slippage for each stage of the order process in basis points.


BEST EXECUTION FACTORS AND SUMMARY

A) COST

Spread Cost

Spread cost is the measurement of the actual cost per trade as a spread to the BestX computed mid for the trade execution time stamp. The actual cost is compared to the expected cost calculated using the BestX fair value model. The traffic light definition is provided below:

Green if Actual Spread is less than 70% confidence interval of Expected value
Amber if Actual Spread is between 70-90% of the confidence interval of Expected value
Red if Actual Spread is greater than 90% confidence interval of Expected value

Please note that this traffic light is currently only available for FX due to the lack of a Fixed Income expected cost model.

Impact Cost

Impact cost is the measurement of the actual instantaneous impact per trade as a spread to the BestX computed top of book bid or offer for the trade execution time stamp. The actual impact is compared to the expected impact calculated using the BestX fair value model (further details available on request) (reference). The traffic light definition is provided below:

Green if Actual Impact is less than 70% confidence interval of Expected value
Amber if Actual Impact is between 70-90% of the confidence interval of Expected value
Red if Actual Impact is greater than 90% confidence interval of Expected value

Please note that this traffic light is currently only available for FX due to the lack of a Fixed Income expected cost model.

Delay Cost (Implementation Shortfall)

Delay Cost is represented within the Implementation Shortfall section, which is a post-trade metric measuring the slippage from order origination, i.e. between the following time stamps:

1.       Order Origination (i.e. when the portfolio manager decides to trade)
2.      Order Completed (i.e. when the order is fully filled)

For FX, the traffic light definition is as follows:

Green if market has moved in favour of client since origination
Amber if market has remained within a -0.5 and 0bps range from the Expected value at origination
Red if market has moved against the client by < -0.5bps over the Expected value at origination

For Fixed Income, the definition is the same although a wider tolerance of 5 bp instead of 0.5 bp is used.

Please note: this factor will only be computed if the client supplies a trade origination time stamp, otherwise the factor will not be visible.

B) PRICE (BENCHMARKS)

Under the MiFID II definition of best execution, one of the key factors referred to is Price. For the purposes of the BestX implementation we have implemented this in the form of Benchmark performance, and the factor has been relabelled as Price.

The overall weighted benchmark performance is now calculated for the purposes of defining the colour of the traffic light for Benchmark (or Price) factor

The traffic light definition is now as follows:

Green if the total weighted benchmark performance > 0
Amber if the total weighted benchmark performance = 0
Red if the total weighted benchmark performance < 0

C) SPEED

 This factor measures the slippage from market arrival, i.e. between the following time stamps:

1.       Market Arrival (i.e. when the order/trade arrives at the market)
2.      Order Completed (i.e. when the order is fully filled)

The traffic light definition is as follows:

Green if market has moved in favour of client since arrival
Amber if market has moved against the client within the error tolerance of the expected spread model
Red if market has moved against the client since arrival by > expected spread including the error tolerance

Please note: this factor will only be computed if the client supplies a market arrival time stamp, otherwise the factor will not be visible.

D) POST-TRADE REVALUATION

For FX, the traffic light definition is as follows:

Green if market has moved in favour of client at the 30s reval point by > 0.2bps
Amber if market has remained within +/- 0.2 bp range at the 30s reval point
Red if market has moved against the client at the 30s reval point by < -0.2bps

For Fixed Income, the definition is the same although a wider tolerance of 5 bp instead of 0.2 bp is used.

E) SUMMARY

In line with the MiFID II best execution requirements, an overall summary of the factors has been introduced in the traffic lights. This Summary factor is an aggregation of the individual factors selected by the specific client, so the factor is specific to that institution and their chosen priorities/weights within their best execution policy (as defined in the BestX Factors screen). It is therefore not comparable across clients.

The traffic lights are shaded according to the selected factor weighting.

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