Grey costs per trade

50% of our industry is missing 70% of our costs per trade. What does that mean for us in terms of regulatory compliance, efficiency and growth?

What decisions are we making about our future: and they the right decisions?

Grey costs per trade benchmarking campaign by VX

71% want to but only 30% do

Despite 71% of the industry seeing value in the metric, it was a great surprise to learn that only 30% of our industry is tracking a cost per trade in 2020 – least of all COOs. Although investors see costs per trade as closely linked to regulatory compliance (notably MIFID), brokers see accurate management of their trading costs as a source of competitive advantage.

Yet neither side is tracking more than half of their real trading costs. Misled in some cases by MIFID’s Transaction Cost Analysis guidelines, 50% investors are missing up to 45% of their costs behind every trade – overlooking out of pocket expenses and IT system costs most of all. On the sell side, half of the industry is missing up to 28% of their costs per trade – with the costs of risk and capital being the major areas of oversight.

These critical gaps in cost tracking are an urgent problem today: giving rise to incorrect resource allocations and driving the wrong behaviours. As new regulations (such as CSDR) take effect, poor cost visibility will mean that both the buy- and sell-sides face cost increases of up to 60% – without being able to track or control the cause.

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Allocated costs: the new organisational frontier

There are several reasons for this oversight. With 29% of back office systems run on a single-country basis, disparate IT systems make cost tracking almost impossible. Yet organisational barriers (between Operations and Treasury, for example) are the main obstacle to clarity: obscuring visibility of up to 42% of the cost of a trade. Allocated costs, most notably capital costs and the cost of risk, are systematically overlooked by firms across the investment cycle – with 38% of respondents failing to track costs because “they don’t own them”.

The result? Divergent paths and impeded return on investment. Operations departments turned to Robotics / RPA and to greater offshoring in 2020 – whilst treasuries sought greater credit lines from their Banks.

But by Q2, COVID-19 had quickly made both options impracticable.

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Full Key Findings

Download the key statistical insights from our industry-wide research here

Grey costs per trade key findings by VX

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Download the key statistical insights from our industry-wide research here

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