The value of commissions paid to European brokers fell 29 percent in 2012 as equity volumes declined amid the European debt crisis, according to a study by Tabb Group LLC.
Payments dropped to 865 million euros ($1.1 billion) this year from 1.2 billion euros in 2011, according to a survey of money managers, who together oversee 13.6 trillion euros. About 45 percent of respondents said they have cut the percentage of orders they route to traditional sales-trading desks, with 66 percent switching into computer algorithms, the study found.
“A combination of a deepening economic crisis, increasing regulation, collapsing volumes and commission wallets is escalating the need for immediate action on outdated business models,” said Rebecca Healey, author of the Tabb report titled “Changing the Rules of Engagement.” “The status quo can no longer be maintained.”
Equity trading volumes have declined globally, with exchanges including NYSE Euronext (NYX:US), Deutsche Boerse AG (DB1) and Nasdaq OMX Group Inc. (NDAQ:US) all reporting a drop. The volume of shares changing hands in Stoxx Europe 600 Index companies, averaged over the previous 50 days, has declined 27 percent from a year ago, according to data compiled by Bloomberg.
As volumes fall, 45 percent of those surveyed said they are concentrating and reducing commission payments and 42 percent said they are evaluating the broker services they use.
“All market participants need to be prepared to achieve more with less,” Healey said. “With no increase in volumes in the immediate future, brokers will need to generate revenues more effectively with reduced headcount and limited resources.”
As liquidity dries up, the number of traders using dark pools, where prices aren’t publicly displayed, is climbing. Ten percent of those surveyed said they did more than 30 percent of trading in dark pools, an increase from 8 percent in 2011.
In 2011, securities firms were forced to scale back and close divisions trading stocks in Europe as the region’s debt crisis accelerated a decline in profitability. UniCredit SpA (UCG), Italy’s largest bank, shuttered its western European equities unit in November last year, joining at least five other companies, including Nomura Holdings Inc. (8604), that eliminated equities staff in Europe.
Tabb interviewed 60 head traders of equity desks in August and September, of which 40 were traditional asset-management firms and 20 were hedge funds.
Credit Suisse Group AG (CSGN), UBS AG (UBSN), Morgan Stanley (MS:US), Deutsche Bank and Bank of America Corp. (BAC:US) were the region’s top equity traders in 2012 by average daily volume, according to Tabb.
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