New York – Last week, Integrity wrote about a Greenwich Associates study which showed commissions paid were down this year over last year despite expectations of a 15% increase in commission pools. This week, Integrity would like to continue the discussion by citing a study from the TABB group entitled “US Institutional Equity Brokerage 2010”. The report touches on three findings by the TABB group, namely that: “US equity commission rates would be flat to lower in 2010; The percentage of order flow traded via low-touch channels was going up; and CSA usage would grow while the percentage of commission staying with the executing broker would fall.”
The reason that the report found commission rates were likely to be lower in 2010 was not because of the high touch rates, which it actually found were likely to be somewhat steady but instead because of the low touch rates, which 56% of respondents in the report thought were going to go lower in 2010.
The report also found that investors expected to increase their usage of low touch trading. The buy-siders interviewed in the report felt that trade flow to high touch execution would continue to drop to 33% in 2010 (a 5% decrease from 2009) while low touch trading would increase to as much as 58%. Algorithms were also expected to become more popular in terms of the trade flow allocated to them.
Perhaps the most interesting finding to Integrity is the fact that the TABB group thinks the use of CSAs as a tool for paying independent research firms is going to increase and that the percentage of commissions dollars allocated to the execution component of a CSA is going to drop. The article states that “the buy-side desk uses its most favored sell-side trading firms to achieve best execution while allocating an increasing percentage of commission paid through CSAs to support the portfolio manger’s research budget.”
CSA payments can go to brokerage firms or to independents. Currently in the U.S. the bulge firms don’t accept payments for their proprietary research through CSAs although they do in Europe. One this changes CSA adoption will increase further.
New York – Last week, Integrity wrote about a Greenwich Associates study which showed commissions paid were down this year over last year despite expectations of a 15% increase in commission pools. This week, Integrity would like to continue the discussion by citing a study from the TABB group entitled “US Institutional Equity Brokerage 2010”. The report touches on three findings by the TABB group, namely that: “US equity commission rates would be flat to lower in 2010; The percentage of order flow traded via low-touch channels was going up; and CSA usage would grow while the percentage of commission staying with the executing broker would fall.”
The reason that the report found commission rates were likely to be lower in 2010 was not because of the high touch rates, which it actually found were likely to be somewhat steady but instead because of the low touch rates, which 56% of respondents in the report thought were going to go lower in 2010.
The report also found that investors expected to increase their usage of low touch trading. The buy-siders interviewed in the report felt that trade flow to high touch execution would continue to drop to 33% in 2010 (a 5% decrease from 2009) while low touch trading would increase to as much as 58%. Algorithms were also expected to become more popular in terms of the trade flow allocated to them.
Perhaps the most interesting finding to Integrity is the fact that the TABB group thinks the use of CSAs as a tool for paying independent research firms is going to increase and that the percentage of commissions dollars allocated to the execution component of a CSA is going to drop. The article states that “the buy-side desk uses its most favored sell-side trading firms to achieve best execution while allocating an increasing percentage of commission paid through CSAs to support the portfolio manger’s research budget.”
CSA payments can go to brokerage firms or to independents. Currently in the U.S. the bulge firms don’t accept payments for their proprietary research through CSAs although they do in Europe. One this changes CSA adoption will increase further.