New York – In an article in Traders Magazine.com a discussion of the impact of CCAs on the number of trading partners is discussed. The article is based on a Greenwich Associates study that finds that the adoption of CCAs and the resultant reduction in trading partners is progressing rapidly.
The study finds that the 47% of buy-side institutions are planning to adopt CCAs in 2008, compared to 27% at the end of 2007. Even more telling, 44% of the respondents said they were expecting to shorten their counterparty list in the future. In addition, the larger shops—those paying more than $50 million in commissions cut almost 32 trading partners on average.
The trend towards fewer trading partners was predicted early on. A study presented by James Bennett Jr. at the Institutional Brokerage Conference in New York, indicated that the number of brokers used to receive Equity Research was set to fall. Fully 36% of the survey group indicated that they were going to use fewer brokers. The benefit to buy-side accounts is that they can have fewer trading partners and not give up the research they find valuable.
Clearly, this is the trend that sell-side research platforms are trying to attenuate. By providing third party research services, the odds that the counterparty will trade with that broker is greater, if the broker offers more services than others.
This is an even greater a concern for mid-sized, regional IBs, which will find it hard to maintain their trading relationships with clients. In response, the regionals are looking at growing their offerings or consolidation to maintain their businesses.