2013. 1. 31 Samsung Securities (Korea) www.samsungpop.com . , , , , . , . . . DERIVATIVES ISSUE Transaction Cost Analysis TCAMoney ball ( ) : Equity Derivatives Issue : , . 2011 2012 KOSPI 30% , VKOSPI . ETF . . enhanced beta . (alpha loss) . (transaction cost): (market impact) , . ( ) , timing risk ( ) . : Implementation Shortfall . VWAP, TWAP . Implementation Shortfall, . TCA(Transaction Cost Analysis): TCA . IB HFT , one-stop . Buy-side Passive manager , Sell-side TCA . TCA process . Analyst gyun.jun@samsung.com 02 2020 7044 trisha.sung@samsung.com 02 2020 7823 2013. 1. 31 Equity Derivatives Issue 2 (Transaction Cost) . . (transaction cost) . , . ( ) , . High frequency trading( HFT) . . (1) (Explicit cost) (2) (Implicit cost), , . (visible cost) (hidden cost). , . (Awareness) (Impact)High Low Broker Commissions LowHighExchange Fees Taxes Bid-Ask Spread Market Impact Operational Opportunity Cost Market Timing Opportunity Cost Missed Traded Opportunity Cost : (Broker Commission ~ Taxes) , : EDHEC, "Cash Equity Transaction Cost Analysis", 2008 . CSA(Commission Sales Agreement) . , ( , ) . 1. p2 2. IS p9 3. Transaction Cost Analysis p18 vs 2013. 1. 31 Equity Derivatives Issue 3 . . 2011 0.4986%( 0.3% ). 1,000 49,860 . KOSPI200 2011 0.00044%, KOSPI200 0.01333% . . ( ) (%) 2001 2003 2005 2008 2011 0.1949 0.1805 0.1660 0.1206 0.0993 0.0109 0.0109 0.0093 0.0075 0.0054 () 0.1840 0.1696 0.1562 0.1131 0.0939( ) 0.3000 0.3000 0.3000 0.3000 0.3000 0.6898 0.6610 0.6320 0.5412 0.4986: / , : , , 2012.7 2011 0.4986% (2%) 1,000 , . 1 75% 10 72% , 20 68% . 1 : (2%) . : (0.3%) . (stamp duty) High Frequency Trading . KOSPI200 HFT . . (Sugihara Yoshihiko) : ( / 2011. 4) . : (Delay cost) : Market impact, Timing Cost, Spread : (Opportunity cost) , HFT 4,000 2,753 1,247 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 1 2 4 6 8 10 12 14 16 18 20 ()()2013. 1. 31 Equity Derivatives Issue 4 (Delay cost) . . broker broker , FIX DMA . (Market impact) . Timing cost ( Volatility cost ). (Market impact) (liquidity demanding cost) (information providing cost) . . . , . . (temporary impact) (permanent impact) . (visible factor) / (bid-ask spread). . , . // . (order processing cost) , () () () . (inventory control cost) . (adverse selection cost) (informed trader) . (KRX) , 2008 , 2010 . . , 2010 . 2002 . 2010 . KOSPI200 KOSPI200 : =(/(+)) : KRX, : KRX, , , & Timing cost, - KRX , 2010 0 20 40 60 80 100 120 140 160 180 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 2000 1 2003 5 2006 9 2010 1 () ()() (%)0 5,000 10,000 15,000 20,000 25,000 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 2000 1 2003 5 2006 9 2010 1 () ()(%) ()2013. 1. 31 Equity Derivatives Issue 5 (Opportunity cost) . . (delay cost) , broker . . . . trade off . . Timing risk . . , . () . . ( ) . trade- off : ITG(Investment Technology Group) . ITG Implementation Shortfall(IS, ) (Commission, ) . ITG , . 15% , Timing cost . Emerging market-Asia(, , , ) , 30% . 2.5 2.0 . 18% . = trade-off () ITG Global , 0510152025303540451 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31Trading cost Timing market impact()()2013. 1. 31 Equity Derivatives Issue 6 : Commission, : ITG, ITG Global Cost Review 2012/Q2 Emerging Market- Asia : Commission, : ITG, ITG Global Cost Review 2012/Q2 . (, , Perspective, 2012, Vol. 4, No.2) ( / ) 0.612% . 2010 10 11 , 5.75, 176 . . . KOSPI200 . . . , () . , 0.612% 01020304050602010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2Implicit Explicit(bps)0204060801001202010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2Implicit Explicit(bps)2013. 1. 31 Equity Derivatives Issue 7 KOSPI200 : 1 29 : KRX, . . , . Algorithmic trading . Algorithmic trading , . Algorithm . Algorithmic trading , , () . . Algorithmic trading . Algorithmic trading (Sugihara Yoshihiko) (Static approach) (Dynamic approach) . (Sugihara Yoshihiko) . data timing . (Benchmark type) (Cost type) . VWAP(Volume weighted average price) TWAP(Time weighted average price) . MOC(Market On Close) . Implementation Shortfall . . , (Participation type) (Opportunity type) . VWAP POV(Percentage Of Volume) Dynamic MOC . POV VWAP . Dynamic MOC MOC . Algorithmic trading Algorithmic trading, Algorithmic trading, Algorithmic trading, R = 0.13370.01 0.04 0.11 0.33 1.00 3.00 100 1,000 10,000 100,000 1,000,000 ()(%)2013. 1. 31 Equity Derivatives Issue 8 Adaptive Shortfall Implementation Shortfall . Adaptive Shortfall AIM(Aggressive in the money) PIM(Passive in the money) . , . Iceberg Pegging . . . Wait & Pounce . Switch Algorithmic trading . Algorithmic trading Static Approach Benchmark type VWAP, TWAP, MOC Cost type Implementation Shortfall Dynamic Approach Benchmark type POV, Dynamic MOC Cost type Adaptive Shortfall(AIM, PIM) Participation type Iceberg, Pegging Opportunity type Wait & Pounce, Switch : , : ( / 2011. 4) Algorithmic trading . , , , , . Algorithmic trading . VWAP , AS . . NYSE 20 . FOK(Fill or Kill) IOC(Immediate or Cancel) Hidden order, Center-Point order Algorithmic trading . Broker Algorithmic trading , . Adaptive shortfall Aggressive vs Passive Iceberg, pegging Algorithmic trading KRX NYSE , Hidden order 2013. 1. 31 Equity Derivatives Issue 9 - IS Benchmark , . , . . ( , ) (-)(negative cost) , ( , ) (+)(positive cost) . tool . (time independent, absolute) , (time dependant, time related) . (pre trade benchmark). . / (mid prices) (close price) . 150bp . 5bp . VWAP(volume weighted average price) TWAP(time weighted average price) . VWAP(available VWAP) VWAP(interval VWAP) . . 20 VWAP 100bp , 10 1 VWAP 30bp . () / () . 10,350 10,500, (-) . 5,670 5,700 (+) . / . ( ) guide line . 1. p2 2. IS p9 3. Transaction Cost Analysis p18 = Pre-trade benchmark tool Intra-day benchmark Post-trade benchmark 2013. 1. 31 Equity Derivatives Issue 10 Benchmark VWAP(volume weighted average price). VWAP . PVWAP = Pi*Qi /Qi (Pi: i , Qi: i ) VWAP / , . VWAP VWAP . 2012 7 ~ 11 VWAP . VWAP +14 . VWAP -1,222, . () VWAP () VWAP : KRX, : KRX, VWAP TWAP(time weighted average price). (moving average) . POSCO TWAP VWAP . POSCO TWAP VWAP , . . POSCO TWAP VWAP : 1 29 (10 10) : KRX, VWAP Volume weighted average price Time weighted average price (20,000)(10,000)0 10,000 20,000 30,000 40,000 1,000,0001,050,0001,100,0001,150,0001,200,0001,250,0001,300,0001,350,0001,400,0001,450,0001,500,0002012 7 2012 9 2012 11VWAP- () ()VWAP ()() ()(1,000)(500)0 500 1,000 1,500 2,000 86,00088,00090,00092,00094,00096,00098,000100,0002012 7 2012 9 2012 11VWAP- () ()VWAP ()()()351,000 352,000 353,000 354,000 355,000 356,000 357,000 9:10 10:10 11:10 12:10 13:10 14:10TWAP VWAP POSCO()2013. 1. 31 Equity Derivatives Issue 11 VWAP TWAP . VWAP 20% Participation % . , , (%) . PWP(participation weighted price) VWAP x . PWP , V P, pk vk . PWP ={vk*pk /vk} , Min vk (V/P) 10 1 VWAP 20% 10 VWAP 20% 1 . Participation % . (30 ~ 6) (1% ~ 100%) . 10% . 20% 3 10% . : 289,453, 1,440,000 : KRX, Benchmark , . VWAP (noise) . VWAP , VWAP . Participation % VWAP gaming effect . VWAP TWAP . 10 10 smoothing effect . . VWAP VWAP . . 0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320 participation(%)durationvalueParticipation % , VWAP gaming , 2013. 1. 31 Equity Derivatives Issue 12 RPM(relative performance measure).1 RPM . , . RPM . P*, pi , RPM , RPM = 0.5*{RPMtrades + RPMvolume} RPMtrades = (pi>P*)/ RPMvolume = (pi>P*)/ RPM . data RPM . RPM . VWAP A 10bp, B 30bp A B . RPM A 60%, B 75% B . VWAP , . Implementation Shortfall . ( ) . , , . , Timing Cost . . Implementation Shortfall. Implementation Shortfall( IS) 2. IS . , IS . . , Shortfall . Implementation shortfall . 1 Kissell, R, and Morton G. Optimal Trading Strategies, Amacom, 2003 2 Perold A.F, The Implementation Shortfall: Paper versus Reality, 1988 Perold IS the difference between your performance on paper and in reality . Paper portfolio , Real portfolio . Relative performance measure RPM VWAP , Implementation Shortfall IS 2013. 1. 31 Equity Derivatives Issue 13 IS . X S0, broker Si xi (i = 1,2,,I : X xi). SN . 3 IS = (SN Su)X {(SN Si)xi ()] . . broker . . IS , . IS . IS = (S1 Su)X + (Si S1)xi + {X xi](SN S1) + () , (delay cost). Timing cost, . (opportunity cost). . . IS , , . 1,000 () , 2.0( 2,000) broker 2 500 . 2.0 2.1 , IS 50 . 2,000 50 2,050 . IS = (2.0 2.0)*1000 + (2.1-2.0)*500 = 50 , . . 50 Implementation shortfall . IS . . , (/) . , (market microstructures) . 3 Kissell Robert, The Expanded Implementation Shortfall: Understanding Transaction Cost Components, The Journal of Trading, 1 (3), 2006 . IS IS , (, , ) 2013. 1. 31 Equity Derivatives Issue 14 . (liquidity demanding cost) (information providing cost) . . . . . () (permanent impact) , (temporary impact) . 4 1 - / : (/) , . . - / : 4 Holthausen, Leftwich, Mayer, The Effect of Large Block Transactions On Security Prices, JoFE 19, 1987 . signaling . () IS 2013. 1. 31 Equity Derivatives Issue 15 . (MI) , (1-) , .5 MI = I + (1-)I (net imbalance, ) , , . Almegren & Chriss (Almegren Robert and Neil Chriss, Optimal execution of portfolio transactions, Journal of risk, 3(2), 2000) . Stk-1, Stk, Stk , k xk . g(xk/), h(xk/) , Stk / . Stk = Stk-1 + g(xk/) + Zk, Zk ~ N(0, 1) k . Stk = Stk-1 + h(xk/) Implementation Shortfall ( Xkg(xk/)) ( xkh(xk/)) . (Brown motion) IS . IS(x) = {Xkg(xk/)+ xkh(xk/)-XkZk} IS E{IS(x)} V{IS(x)} , U(IS(x)) = E{IS(x)} + V{IS(x)} 1 x . . g h data . , , .6 Implementation Shortfall . (efficient trading frontier)7 Markowiz () . () () . A B, C . D , . 5 Kissell, R, and Morton G. Optimal Trading Strategies, Amacom, 2003, Catherine D and Jean-Rene G, Transaction Cost Analaysis A-Z, EDHEC-RISk , 2008 . 6 Almren R, Chee T, Emmanuel H and Hong L, Direct estimation of equity market impact,CIMS, NYU, 2005 Kyle A and Anna O, Market microstructure invariants, SSRN, 2010 . 7 Almegren and Chriss, Optimal Execution of Portfolio Transactions, Journal of Risk, 3(2), 2001 Makimoto N and Yoshihiko S, Optimal Execution of Multiasset Block Orders under Stochastic Liquidity, IMES Discussion paper, BoJ, 2010 . = + Almegren & Chriss IS 2013. 1. 31 Equity Derivatives Issue 16 . . ( ) () , . . : . ( ) . . . Timing Cost Timing cost , Volatility cost . Timing cost . . , EWMA(exponentially weighted moving average) GARCH(generalized autoregressive conditional heteroskedasticity) . basket . , . Timing risk . () . (autocorrelation) , (cross-correlation) . Timing cost (complexity) (econophysics) . () A B C D 2013. 1. 31 Equity Derivatives Issue 17 OPEN TCA Consultation paper(Transparency and Standards in the Provision of Transaction Cost Analysis,2011 ) , . OPEN TCA . Bloomberg . NI = 125P + _(o2 3 )250, _V0.3-EDV, S: spread, P: price, V: order size, EDV: daily volume, 2: volatility , , (relative order size) . JP Morgan . NI = 5100I + 1.4- 95100 VEPVI whcrc I=0.187_ VEDVo2 I: market impact, EPV: period volume , , (trading rate) . Passive manager Enhanced Beta Index Passive manager tracking error . basket , basket rebalancing . tracking error . Passive manager . Passive manager tracking error trade-off . , . basket . basket (// ) basket tracking error data . tracking error tracking error . Passive manager tracking error . tracking error basket . tracking error trade-off Passive manager 2013. 1. 31 Equity Derivatives Issue 18 Transaction Cost Analysis (Transaction Cost Analysis, TCA) . TCA data , . TCA . TCA post-trade . , . . TCA . ( ) (pre-trade) (post-trade), . TCA Pre-trade analysis , Post-trade analysis . Pre-trade analysis Post-trade analysis . TCA : Pre Trade Analysis data Data Post Trade Analysis BM IS Data Update 1. p2 2. IS p9 3. Transaction Cost Analysis p18 process Pre-trade ~ Post-trade TCA 2013. 1. 31 Equity Derivatives Issue 19 TCA Consultation Paper (Transparency and Standards in the Provision of Transaction Cost Analysis, Sep. 2011, OPEN TCA) TCA 6 . Individual Traders, Heads of Trading desk, Portfolio Manager, Senior Manager(CEO, CIO, COO), Compliance officers, Sales & Marketing personnel. Consultation Paper TCA . TCA . Consultation Paper TCA . , , TCA . TCA , PM trader Broker Manager /CIO Trader CEO/COO/Compliance Trader : Transparency and Standards in the Provision of Transaction Cost Analysis, Sep. 2011, OPEN TCA (Pre-trade Analysis) . trader . data (, ) , (, ) , . data ( , ) ( (ADV), ADV ) , Tick data , (), . data 1 ~ 3 , data . ( ) . data . Timing cost , . . , . , Fundamental Technical approach . . Options pricing model /(binomial/trinomial tree model) , MC(Monte Carlo Simulation) . data . , , . , . TCA TCA data 2013. 1. 31 Equity Derivatives Issue 20 Intra-day TCA . (static approach) Algorithmic trading Intra-day TCA , (dynamic approach) Algorithmic trading . Intra-day TCA . TCA , Table (Part%) (Dur) (Cost) (Wgt Risk) . 10,000 15% 1 39 31.5bp 28.0bp 59.5bp . . . Broker TCA Algorithmic trading platform Basket . . Bloomberg ( ) : Bloomberg (Post-trade Analysis) . data . . (efficient transaction curve) . VWAP . . . Dynamic approach Algorithmic trading / IS 2013. 1. 31 Equity Derivatives Issue 21 . Broker Broker , Broker . ( ) . . TCA report ifs LiquidMatrix Workstation TCA . Implementation Shortfall , . TCA Report : LiquidMatrix Workstation TCA : Intelligent Financial System(ifs) TCA Greenwich (TCA: Taking the Nest Step, Aug 2011) , 40% TCA broker trader 38% TCA . 40% TCA . ITG (TCA in Europe: The London/Paris Divide and Where They Meet, Mar 2012) 33% broker TCA , PM(portfolio manager) trader 23% TCA . (Exchange) , Sell-side Best Execution Buy-side ( ) . TCA Sell-side Buy-side . IB TCA . pre-trade & post-trade TCA One-stop . (, , ) CEP(Complex event processing) . Global TCA 2/5 TCA Best execution broker, trader 2013. 1. 31 Equity Derivatives Issue 22 Broker TCA TCA . TRADE Magazine TRAGE Guide 2010 Guide TCA . Transaction Cost Analysis - 1 Barclays Capital BoA ML Bloomberg Deutcshe Bank Asset Class & Market Global Global Global (FX Credit ) Transaction Data data 4 data data Benchmark BM BM 100 BM dynamic BM Reporting options , TCA . Bloomberg (PDF, ) Pre-trade Analysis , Basket PTA Global Execution Analysis PTA BM PTA , PTA Transaction Cost Analysis - 2 Fidessa Instinet ITG Nomura Asset Class & Market Global 40 , FX Global , , ETF Global Transaction Data data . data Broker data data data Benchmark BM BM VWAP BM BM 100 BM BM BM , Dark Pool Reporting options Pre-trade Analysis 50 PTA stress test PTA ITG Logic pre-trade analytics TradeSpex Transaction Cost Analysis - 3 Morgan Stanley UBS Trading Screen Elkins/McSherry Asset Class & Market , , ETF Global ,ETF U.S, EMEA, Asia-Pacific, , FX, ETF Global , 62 Transaction Data MSA data data data data 90 data Benchmark BM BM 30 BM BM / BM Reporting options // Web based platform Web based platform. Pre-trade Analysis what-if PTA UBS Fusion PTA Broker PTA , PTA PTA : TRADE Guide 2010 Transaction Cost Analysis, 2010 2013. 1. 31 Equity Derivatives Issue 23 TCA Michael Lewis Money ball , Buy-side Sell-side Fundamental Technical approach Transaction cost analysis . Sell-side . VWAP TWAP data OMS(Order management system) . Buy-side Post-trade (, ) . Algorithmic trading (, FIX ) Algorithmic trading . Basket trading AIM(Aggressive in the money) PIM(Passive in the money) . Buy-side TCA , TCA . compliance . TCA Sell-side TCA Buy-side broker TCA 2 250 10 / Tel: 02 2020 8000 1588 2323 / 1544 1544 080 911 0900