big xyt launches portfolio liquidity analysis solution in partnership with Baillie Gifford to address new dilution levy guidance for the buy-side

London, 6 December 2023: big xyt, the independent provider of smart data and analytics solutions to the global trading and investment community, today announced the launch of its Portfolio Liquidity Analysis solution. Developed in partnership with investment management firm, Baillie Gifford, it enables buy-side firms to gain an independent view on the liquidity of equity portfolios by using reliable and consistent market data.

Investment managers apply a dilution levy as part of their cashflow management process of pooled vehicles. This ensures clients are treated fairly and mitigates the impact of price volatility caused by cashflow activity. big xyt’s Portfolio Liquidity Analysis tool, a subset of its Open TCA solution for execution analysis, addresses the challenges faced by the buy-side. This is particularly helpful when sourcing accurate datasets, which must be harvested, harmonised and processed consistently over time to provide reliable estimates. Consultations are ongoing with industry bodies, and new guidance is expected during 2024.

An understanding of addressable volumes is required to create a realistic ‘denominator’ for these calculations, for example, only measuring the relevant liquidity that is accessible and excluding what is not. Sharing this data with banks and brokers (the traditional providers of pre-trade cost estimates) can also increase the risk of information leakage.

The new solution automates the process of dilution application in a way that is data-driven and fair to the existing shareholders. It also provides a quantitative view of the application of dilution charges. When applied correctly, this helps investment managers minimise the impact of trading on a fund’s performance, and apply test scenarios to evaluate the effect of more volatile conditions.

Trading data is used to calibrate the market impact estimates to improve the model fit and accuracy of the estimates (based on realised episodes of similar flow types). The market data model is responsive to changes in market conditions, allowing for accurate pricing in line with market conditions.

Mark Montgomery, Head of Strategy and Business Development at big xyt, commented: “Working on this solution in partnership with Baillie Gifford has provided a new turnkey solution for the buy-side. It addresses the major challenges faced by investment managers when managing portfolio liquidity, and reduces operational risk and user error with a robust yet streamlined process that automates dilution charges on a daily basis, which saves teams significant research time that can be used elsewhere.”

Adam Conn, Head of Trading at Baillie Gifford, added: “The partnership with big xyt was a collaboration between our trading and operations teams. Our aim was to create a robust dilution adjustment and a threshold process for large deals, that is in the best interests of our clients, with high regulatory standards.”

The results are displayed in interactive web-based dashboards, and bespoke views can be created to meet a variety of industry needs.