System and method for evaluating security trading transaction costs

Abstract

A system and method for comparing investment transaction costs of institution peers includes database and a processor coupled to a network. The processor may be configured receive, via the network, security transaction data of investment institutions, which included data for traded securities, transaction order sizes, execution prices, peer identities and timestamps. The processor is further capable of grouping transaction data into groups of orders, calculating order costs and environmental factors for each order, and calculating a peer's average order cost within each group. The data are stored in the database so that it may be retrieved and displayed.

1 . A method for creating a peer group database, said method comprising the computer implemented steps of:
 receiving, via an electronic network, security transaction data of a plurality of investment institutions, said transaction data including identities of traded securities, transaction order sizes, execution prices, peer identities and timestamps;   grouping, using a computer processor, said transaction data into groups of orders;   calculating, using said computer processor, an order cost and at least one environmental factor for each order of said groups of orders;   calculating each peer's average order cost within each group of orders in which the peer has one or more orders; and   storing said calculated data in a database.   
     
     
         2 . The method as recited in  claim 1 , wherein the order cost is calculated relative to a metric selected from the group of metrics comprising:
 a closing price C T−1  of the security on a day prior to the day of the execution of the corresponding order;   a volume-weighted average price VWAP across all trades for the security during the day of execution of the corresponding order;   a closing price C T+1  of the security on the first day after the day of execution of the corresponding order;   a closing price C T+20  of the security on the 20th day after the day of execution of the corresponding order;   an open price O T  of the security on the day of execution of the corresponding order;   a prevailing midquote M T  of the security prior to the execution time of the corresponding order;   a Participation Weighted Price PWP of the security based on a pre-determined participation factor; and   an Implementation Shortfall cost N t  of the security based on the next composite tick price or next composite open price.   
     
     
         3 . The method as recited in  claim 1 , wherein said costs are calculated in real-time as transactions are executed. 
     
     
         4 . The method as recited in  claim 1 , wherein average costs are computed only for orders executed or initiated in a pre-determined time period. 
     
     
         5 . The method as recited in  claim 1 , wherein the one or more environmental factors are selected from the group consisting of Momentum, Volatility, and Liquidity. 
     
     
         6 . The method according to  claim 1 , wherein peer average order costs are value-weighted. 
     
     
         7 . The method according to  claim 1 , wherein peer average order costs are observation weighted. 
     
     
         8 . The method according to  claim 1 , wherein at least some of the security transaction data is received from an institutional trader's order management system. 
     
     
         9 . The method according to  claim 1 , wherein each peer is a like entity, said like entity selected from the group of like entities consisting of an investment institution, an investment manager, and an investment trader. 
     
     
         10 . The method according to  claim 1 , further including a step of computing a peer's aggregate cost performance based on z-scores for the peer's average order costs. 
     
     
         11 . The method according to  claim 10 , further including a step of computing a peer rank. 
     
     
         12 . The method according to  claim 12 , further including a step of generating a report for displaying on a display device, wherein the report includes a rank and an aggregate cost performance of a peer. 
     
     
         13 . A peer group investment transaction cost comparison system, said system comprising:
 a database; and   a processor coupled to a network, said processor configured to:
 receive, via the network, security transaction data of a plurality of investment institutions, said transaction data including identities of traded securities, transaction order sizes, execution prices, identities of peers and timestamps; 
 group said transaction data into groups of orders; 
 calculate an order cost and at least one environmental factor for each order of said groups of orders; 
 calculate each peer's average order cost within each group of orders in which the peer has one or more orders; and 
 store said data in the database. 
   
     
     
         14 . The system according to  claim 13 , wherein at least some of the security transaction data is transmitted to the processor from an institutional trader's order management system coupled to the network. 
     
     
         15 . The system according to  claim 13 , wherein the processor is further configured to:
 calculate for each peer investment institution an overall average cost, a situational average cost, and one or more average environmental factors; and   generate a report for display on a display device, said report comprising a selected investment institution's average cost, situational average cost, and one or more average environmental factors and data representing peer investment institutions' overall average costs, situational average costs, and one or more average environmental factors.