The more things change, the more they stay the same.
This is the state of the global equities market, where global equity commissions have remained stagnant for the last few years. And despite regulatory reforms, volatile markets, and debate about potentially radical changes to market structure in 2015, headline commission rates paid by institutional investors on global equity trades held steady during the 2014 to 2015 time period, according to market consultancy Greenwich Associates.
In Q4 of 2015, Greenwich Associates interviewed 218 institutions (up from 130 in 2014) across North America, Europe and Asia about the commission rates they pay for equity trades. New to the study this year is the addition of portfolio trading rates and frontier market rates, building on last years coverage of MSCI-classified, developed and emerging markets.
In its latest report, The Evolving Composition of Equity Commission Rates, Greenwich analysts reported that high-touch bundled equity trade commission rates in developed markets of North America, Europe and Asia declined only modestly from 2014 to 2015, slipping from an average of 15.9 basis points (bps) to 15.6 bps. In emerging markets, high-touch bundled rates were statistically unchanged at an average 24.3 bps.
In the U.S., the largest equities market by capitalization, the average high-touch bundled commission was slightly more than 12 bps.
There is a surprising variation of rates within individual markets, Greenwich noted. For example, in France, reported high-touch bundled rates range from 7bps to 25bps.This variation can be attributed to differences in investment strategies, trading strategies and approaches to compensating brokers.
Also, investors pay an 88% premium when executing a high-touch trade in emerging markets versus developed markets. That percentage decreases slightly to 64% when executing algorithmic trades.
Although this premium appears quite large, it has decreased significantly since 2014, Greenwich wrote.
David vs Golaith
The worlds biggest institutions pay rates only slightly lower than those of their smaller counterparts.
Average high-touch execution-only rates declined from 7.8 bps in 2014 to 7.0 bps in 2015, while electronic (algorithmic) execution-only rates remained unchanged at 4.2 bps.
As yet, it is too soon to assess the long-term effects of new regulations emanating from Europe around payment for research, said John Colon, Greenwich analyst. What the buy and sell-side will adopt approaches that more clearly delineate what is being paid for research, a practice that will bring with it greater clarity in trading P&Ls and a potential repricing of execution and access to liquidity as stand-alone services.
