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Lawsuits, Execution Quality And Transparency

State Street is under fire again. Last month, Boeing launched an action against the bank for allegedly over-charging for FX trades. This is similar to other ongoing lawsuits against State Street filed by several US states. State Street continues to "vigorously defend" itself in these lawsuits. But these accusations point to how important pre- and post-trade transparency is.

As I work with various vendors and banks, I repeatedly hear frustration from both the sellside and buyside about how lack of transparency in routing and execution make it difficult to make good trading decisions. The buyside is getting increasingly more sophisticated at transaction cost analysis and are looking for ways to better understand the impacts to trading costs. They're beginning to demand more information and transparency to enable this evaluation.

November 2012 issue of FIX Global Trading has an excellent article on this topic. They interviewed Bill Stephenson, Director of Global Trading Strategy at Franklin Templeton Investments. He says that they are now insisting on more real-time transparency and end-of-day reports from their dark pools, ATSs and even algorithmic providers. As the buyside gets more sophisticated in evaluating and understanding execution quality, the sell side is going to have to be prepared to provide meaningful information.

But the sheer volume of data is also going to create a problem. In the article, Stephenson talks about the challenge of building a platform to manage "concatenate, analyze, and interpret that data."

These issues represent competitive opportunities for vendors and sell sides. It will be interesting to see what new developments arise in the areas of execution quality over the next 12 months.