Data and analytics solutions provider big xyt has created a tool that provides buy-side traders with analytics on ETF execution quality.
The Trade Verification Tool enables buy-side traders to verify “suspicious” ETF trades across more than 30,000 listings across Europe.
With the tool, users can verify an ETF trade at any point by measuring liquidity metrics such as mid-price movement, changes in spreads and changes in volume at-touch.
The tool leverages the engine of big xyt’s Open TCA solution for pre and post-trade execution analytics which is free for registered users.
Trading with non-lit venues such as request-for-quote (RFQ) platforms and systematic internalisers can expose buy-side traders to market impact or information leakage including pre-hedging, a contentious practice where market makers front-run the orders of ETF investors.
According to data from Jane Street, RFQ’s market share of ETP trading in Europe rose to 50% in 2022, up from 48% in 2021 and 44% in 2020.
big xyt said buy-side firms use time of execution as a benchmark to measure performance when trading ETFs, however, this can be “highly inaccurate” as it does not provide any information on changes in liquidity during the trading process such as price movement, reversion or the widening of spreads.
Robin Mess, CEO and co-founder of big xyt, said: “To understand the total cost of trading, market participants should review the quality of execution by using reliable post-trade analysis.
“We are always discovering opportunities and developing new solutions to help the community gain more transparency and better actionable insights to reduce their trading costs.
“Investors can systematically process all orders and trades to find the most relevant information, quickly and easily, which helps with day-to-day trading decisions.”