TY - JOUR T1 - Black Box or Tool Box JF - Trading SP - 102 LP - 106 VL - 2009 IS - 1 AU - Michael Rosen Y1 - 2009/12/21 UR - http://guides.pm-research.com/content/2009/1/102.abstract N2 - The market structure of the equities marketplace has changed dramatically over the past few years. Markets have been characterized by a return to volatility, more complex structure and greater day-to-day variation in market behavior. In addition trading behavior has changed in the past several years as a greater percentage of the market is driven by algorithmic trading. This article addresses the question: Given the changes that have taken place, what sorts of technology should underpin trading systems? The article argues that what is needed in these markets is a component-based architecture that is subject to rigorous Transaction Cost Analysis (TCA). First the traditional black box architecture must be replaced with tool box-like components that can be easily put together and optimized to solve specific challenges. This allows users the efficiency of using standardized components but enables a level of customization that the traditional approaches do not allow. Second, the results must be tested by the application of (TCA)l to analyze the efficiency of the specific algorithms and trading strategies that are used. TCA should be able to analyze at the most granular level of trading strategy and tactical order placement to allow rigorous analysis that can be used to further refine the trading systems. ER -