Most of the theoretical work associated with transaction cost measurement was begun in the late 1970's and continued in the U.S. through the early 1980's. At that time, the practical ability to analyse costs was constrained by three factors; lack of information stored electronically by investment managers; lack of easily usable market information; and lack of database management systems to facilitate reviews.

Services developed at that time were therefore limited in terms of the sophistication of their analysis and the delivery of the information to clients. Most was made available once every quarter, in hard copy format and used a single benchmark against which performance was measured. For non-dollar instruments there was simply no service. While recognising that these services could offer some insights into costs, there was a general concern about the applicability of measures developed to meet the needs of broadly based investment managers or their pension fund clients.

When GSCS launched the first service for non-dollar equities in 1993 it was constrained by these same issues. However, the service did provide an opportunity for the first time for companies to look at their entire global equity portfolios.

In 1999 GSCS determined that the progress of technology would allow the development of more sophisticated, user-friendly services in transaction cost measurement. This reflected three development trends. First, the cost of establishing, maintaining and developing analysis of transaction databases could be greatly reduced. This allowed the natural development of multi-benchmark reporting, as against a single benchmark approach, which had obvious attractions and advantages to investment managers. Second, investment managers had themselves in many cases implemented new order management systems. These enabled the capture of time-stamp information on individual transactions and as a result, more sophisticated analysis, taking account of the time of receipt of an order by a trading desk and/or the time of completion of the order in the market was possible. Finally data vendors made more information available more efficiently allowing cost effective interfaces to be developed for the retrieval of market data. These essential features allowed GSCS to develop much more sophisticated services than had previously been available, at relatively low cost.

GSCS used the enhanced technology available to reconfigure its overall technology infrastructure. GSCS began a series of innovative steps in global equity transaction cost measurement. Using the extra information available GSCS developed an array of new custom client reports to be used by investment managers and in some cases pension funds. These were delivered both in hard copy and electronically and had flexibility in terms of timetables including monthly and weekly reporting.

Recognising that clients wanted access at any time of their choosing to data at the level of a transaction, market, broker, client etc., GSCS took advantage of internet technology to introduce a series of service developments to facilitate on-line analysis. The most recent version of these, made available in 2005, is the institutional trade execution review on-line service (itero). This service builds on previous development work undertaken by GSCS and represents the current “state of the art” in on-line database analytical tools. Clients using itero can choose to generate reports according to more than 50 different criteria covering any period of time and incorporating both their own data and other data contained within the GSCS Universe of information. Reports can be easily downloaded into Excel or other formats for better integration with their own internal reporting requirements, whether for use with their underlying clients, or internal users such as trading, compliance and portfolio management personnel.

The most recent innovation by GSCS has been the development and implementation of transaction cost analysis for fixed income securities. Many investment managers, especially in Europe have significant fixed income assets under management. The new MiFID directive on best execution represents a challenge to these managers not just for equity portfolios but also for fixed income. Responding to the needs of these clients, GSCS has implemented a service that covers all global fixed income instruments, including government, agency and corporate bonds. Analysis includes implementation shortfall as well as best execution measurement.

The innovative history of GSCS reflects the nature of the working relationships that it has with its investment manager clients. Rather than imposing its own views on any subject, GSCS consults extensively with clients to assess their priorities and issues. It then uses its technological leadership position and flexible approach to develop solutions in conjunction with clients.

Technology

Sample reports

Sample agreements