TCA In FX And Fixed Income

In equities, transaction cost analysis (TCA) is relatively straightforward: there's a public, timestamped tape of every trade and quote, so a fill can be measured against the prevailing mid-price at the moment of execution. FX and fixed income trade mostly over the counter through a network of dealers, with no single consolidated record of "the" market price at any instant — the same bond might be quoted differently by five dealers simultaneously, and none of those quotes is officially "the" market.

TCA in these markets therefore has to build its own benchmark, typically by collecting quotes from multiple dealers or electronic platforms around the trade time and constructing a composite mid-price, then measuring the executed price's slippage against that synthetic reference rather than a single authoritative tape.

A worked example

A corporate bond desk executes a buy at 101.25. There's no consolidated tape to check against, so the TCA process instead pulls simultaneous quotes from four electronic dealer platforms — say 101.15, 101.20, 101.22, and 101.18 — computes a composite mid of roughly 101.19, and reports the trade as costing about 6 cents per $100 face value versus that constructed benchmark, a slippage measure that's only as reliable as the quotes fed into it.