Perhaps the least appreciated part of Best Execution and one which receives relatively little attention is that of trade cost performance risk. By “performance risk,” we mean the likelihood of incurring a cost outside the range of typical costs for that order. More specifically, performance risk is the variance around the median trade cost versus some benchmark.
This week’s highlights:
- It is important to look at performance risk and not only weighted averages as part of a Best Execution process.
- The type of distribution metric used to measure performance risk depends on the type of question being asked.
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By Henry Yegerman, ISS LiquidMetrix