Institutional investors predict that half of their U.S. equity trading volume will be executed through electronic and portfolio trading systems by the year 2010, with more active investors estimating nearly 55 percent, according to new research from Greenwich Associates.
The continued movement of trading business to these low-cost systems away from traditional single-stock transactions with broker sales traders is transforming the economics of the equity brokerage business.
Over the 12-month period covered in Greenwich Associates’ 2007 U.S. Equity Investors Study, the amount of commissions paid by institutions to brokers on trades of U.S. shares declined 4 percent – even as the Dow Jones Industrial Average set record highs. After holding steady at about $10.8 billion in 2005 and 2006, total U.S. equity brokerage commissions slipped to approximately $10.3 billion in 2006-2007.
“As the use of new trading systems and technologies continues to increase, single-stock trades executed through broker sales traders will dwindle to just 50 percent of their U.S. equity trading business in three year’s time and to 46 percent among more active investors,” explains Greenwich Associates consultant John Feng.