A large North American mutual fund company managing over $100bn in assets has been required to strengthen oversight of its fixed income trading after a recent regulatory review identified shortcomings.
While the firm had long operated a robust transaction cost analysis (TCA) framework and best execution policies for equity trading, the US Securities and Exchange Commission found that similar scrutiny was not being applied to bonds, said ACA Group.
With fixed income strategies now making up an increasing portion of its assets, regulators pushed for a more comprehensive monitoring programme.
The move exposed an internal challenge that is familiar across the market. Compliance teams often face pushback from traders when attempting to extend TCA and best execution processes to over-the-counter (OTC) markets, where pricing is less transparent and desk-level judgement is more common. In this instance, the fixed income desk resisted deeper analysis and took time to adopt the new reporting expectations, despite pressure from the regulator to embed more structured oversight.
To address the issue, the firm integrated ACA’s Transaction Cost Analysis solution – part of its ComplianceAlpha® RegTech platform – into both its quarterly best execution review and the trading desk’s day-to-day workflow. The structured process established clearer communication between compliance and traders and offered a consistent methodology for evaluating fixed income executions.
Over the next two years, the reporting surfaced a potential problem in the firm’s largest corporate bond portfolio. The analysis revealed that one broker was persistently applying higher mark-ups than peers executing comparable trades in both the treasury and corporate bond markets. The discovery highlighted an overlooked cost inefficiency that had gone undetected in the absence of deeper TCA.
Armed with this insight, the trading team shifted order flow towards alternative brokers offering better pricing. The change reduced overall trading costs in the portfolio by 10 basis points, delivering a meaningful financial benefit to investors. The compliance function was recognised internally for identifying the issue and supporting the shift to more cost-effective execution channels.
The case shows how enhanced oversight can provide value beyond regulatory compliance. While the improved reporting satisfied SEC follow-up expectations, it also helped optimise execution quality and strengthen the firm’s approach to cost management in one of its most active asset classes. What began with reluctance has since evolved into closer collaboration, with the trading desk emerging as one of ACA’s strongest advocates and using TCA insights to continuously refine execution.
ACA’s approach combines regulatory expertise, hands-on guidance, and advanced analytics to help asset managers uncover inefficiencies that might otherwise remain hidden. Its TCA solution has become an important tool for firms seeking to protect investor interests, reduce costs, and drive greater transparency across their fixed income operations.
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