Equities trading focus | Lynn Strongin Dodds The state of play
Lynn Strongin Dodds looks at how brokers are adjusting to the post-2008 equities world.
D
espite the recent stock market rallies, brokerage firms, investment banks and trading venues have been challenged by
depressed volumes and revenues over the past five years. The impact has been profound, prompting industry-wide soul searching, consolidation and new look execution desks. Those that haven’t adapted will find it increasingly difficult to survive in
the post financial crisis world. One of the main reasons is that the lower
volumes and commissions that have plagued the equity world are a permanent feature for the foreseeable future. For example, the Thomson Reuters Equity Market Share Reporter shows that total EMEA volume slid to €706.6 bn in January 2013 from an impressive €1.4 trillion in January 2008 while research from TABB Group notes that commissions from hedge funds and long-only institutions to European brokers for equity trading dropped 18% to €5.86bn in 2012 from €7.2bn in 2011. In addition, equity commissions paid to
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US brokers fell 11% to $12.75bn in 2012 from €14.39bn a year earlier. The situation has only been exacerbated by the
relatively expensive post-trade landscape, although changes are afoot with the merger between EuroCCP, the US post-trade services provider of the Depository Trust and Clearing Corporation and EMCF as well as an interoperability arrangement struck last year between Europe’s main clearers – EuroCCP, EMCF,
LCH.Clearnet and SIX Group. “Equity trading involves not only the front office
but requires interaction with post-trade processes such as clearing,” says Diana Chan, chief executive officer of London-based EuroCCP, who will retain that role at the new firm. “Having one cost base and greater volumes through a single clearer will enable us to benefit from greater economies of scale, and this will allow us to continue to offer competitive clearing fees. However, in order for interoperability to achieve its true potential, all
Best Execution | Summer 2013
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