There is change afoot in traditional-bound Europe. Driven by three
distinct trends - unification, technology and transparency - Europe
will create a far more efficient landscape for investors and asset
managers than it has in the past, says TABB Group in its new industry
benchmark study released today, "Institutional Equity Trading in
Europe 2007: The Buy-side Perspective." According to Adam Sussman,
senior research analyst and the study's author, "these trends position
Europe for rapid growth in electronic trading as we see both direct
market access and algorithmic trading flow growing at an approximate
compound annual growth rate of 50% through 2009."
While European harmonization is moving forward, Europe
independence is still strong, says Sussman. "Cultural and geographic
differences will not disappear quickly, which is why less than 33% of
the buy-side believe that a single market structure will take hold in
the next five years. Even after MiFID is adopted into law and
implemented across the 30 countries, a grand unification of capital
market is not in the cards for at least a few decades."
Key findings from the study include:
-- Fifty-five percent of the buy-side believes MiFID will have a
significant impact on how they execute their orders, the
greatest change being the fragmentation of liquidity across a
host of new venues such as Project Turquoise, Instinet's Chi-X
and Equiduct.
-- By 2009, over 58% of the buy-side will be using algorithms, up
from 41% in 2007.
-- The percentage of orders routed via FIX rose from 39% to 44%
over the last two years, rising to 55% by 2009 with an
additional 10% routed via other electronic methods.
-- Blended commission rates have fallen at a 6% Compound Annual
Growth Rate (CAGR) since 2005 and will continue to fall as the
buy-side expects to route 24% of its flow to low-touch
channels by 2009.
-- Commission Sharing Agreements (CSAs) have significantly
penetrated the UK, adopted by 73% of firms there, with the
next largest adopter being Southern Europe with adoption
levels of only 38%.
-- Brokerage relationships predicated on the back of CSA adoption
will be reduced to continue to concentrate commission dollars
among a fewer number of large brokers with local brokers
struggling as liquidity is de-partitioned and fragments across
new execution venues.
-- The crossing networks are the Holy Grail for the buy-side but
with only 34% of the buy-side being connected to a crossing
network, and most of that among UK traders. More often than
not, the search continues onto other venues.
-- Partitioning of European equities will slowly come to an end
as MiFID and related directives lower barriers to entry across
the European Economic Area (EEA) for the entire financial
services industry.
"The three trends will produce a European capital markets that
will not only continue to siphon listings, revenue and prestige from
the US but will set Europe up to become the leading power in a
globally integrated capital market," said Larry Tabb, founder and CEO
at TABB Group. "However, if you're in the US, don't pack your bags
just yet."
The interview-based study with 54 exhibits is based on
conversations with 70 different buy-side firms trading European
equities located in 20 different countries, including the EU-15 and
the UK. The study covers a broad range of topics including MiFID, the
emergence of new execution venues, desktop trading technology,
advanced execution strategies, commission rates, Commission Sharing
Agreements (CSAs) and the impact these trends are having on the
relationship between the buy-side and sell-side.
The study can be downloaded by TABB Group Research Alliance
clients and qualified media at www.tabbgroup.com. To view an executive
summary or to purchase the report, visit
http://www.tabbgroup.com/research.
About TABB Group
TABB Group is the financial markets' interview-based research and
strategic advisory firm. Founded in 2003 and based on the proven
research methodology fostered by founder Larry Tabb, TABB Group
analyzes and quantifies the investing value chain from the fiduciary,
investment manager, broker, exchange and custodian, helping senior
business leaders gain a truer understanding of financial markets
issues, trends, risks, opportunities and threats. For more
information, visit www.tabbgroup.com.
