Credit Suisse and UBS have been named the 2010 Greenwich share leaders in European equity trading, with each firm boasting a market share in excess of 11 per cent of overall institutional trading volume in European stocks.
These two firms were also named Greenwich quality leaders in European equity trading, along with Bank of America Merrill Lynch and Deutsche Bank.
Greenwich says competition for trading business in European equities is intensifying after a number of major brokers invested in the business just before an unexpected decline in institutional commission brokerage payments on trades of European stocks.
The strong recovery in global stock market valuations from 2009 to 2010 made equity trading a central focus of many large financial service firms’ long-term business plans. Over that period, the European market attracted new entrants from abroad, even as established firms hurt by the global crisis raced to rebuild their franchises and the "winners" from the crisis made investments to lock in their market share gains.
Brokers appeared to have good reason to expect strong revenues from the business this year. At the start of 2010, institutional investors in Europe predicted that the amount of commissions they paid to brokers on trades of European stocks would increase by about 11 per cent in calendar year 2010 – a clear signal that they were bullish about the strength and activity levels in European stock markets.
With the first half of 2010 well behind us, it is now clear that the market is falling far short of that mark. Not only will the commission pool not grow 11 per cent in 2010, it appears that it could actually contract as institutions remain cautious in the face of uncertainty about market direction and continue to sit on large holdings of cash.
"In 2009 and into this year, European brokers, global firms and new foreign competitors were racing to build out their capabilities in European stock trading and research," says Greenwich Associates consultant John Colon. "The question at hand for the coming year is how this expanded capacity will fare in the face of a constrained commission pool. To this point, no one on the sell side has blinked."
In European equity research and advisory services, the 2010 Greenwich share leaders are UBS, Bank of America Merrill Lynch and Deutsche Bank. The Greenwich quality leaders in research and advisory services are Bank of America Merrill Lynch, Credit Suisse, Morgan Stanley and UBS.
In 2008-2009, European institutions as a whole used 56 per cent of commissions paid to the sell side on trades of European stocks to compensate brokers for the provision of equity research, sales coverage and access to corporate management teams. In 2009-2010 that industry-wide share increased to 58 per cent – which translates to an estimated EUR1.7bn in research/advisory spend.
Some of the biggest and most sophisticated institutions in Europe recognise that while the commission pool they use to pay for sell-side research and related services is shrinking, demand for these items among their own portfolio managers and analysts is holding steady – or even increasing due to internal resource constraints.
"These institutions are employing tools like commission sharing arrangements to get maximum value from their commission payments, and they are increasing the share of their commission payments used to compensate brokers for research, sales coverage and access to corporate management teams," says Greenwich Associates consultant Jay Bennett.