Electronic trading floor

Brokers face new competitive pressures from buy-side firms, says TABB Group

There is an air of cautious optimism as market conditions improve, commission wallets nudge higher, assets return and volumes stabilise, according to research from TABB Group.

However, broker lists remain under pressure and the hunt for blocks of natural liquidity remains difficult.
 
TABB chief executive and founder Larry Tabb, who wrote part two of the firm’s annual US institutional equity trading benchmark study, says that despite recent gloomy news, the immediate outlook for the broker community is more bullish than in recent years.
 
“The TABB Equity Broker Index, monitoring whether we’re bullish or bearish on the US equity brokerage industry, looks strong, buoyed by rising assets under management and solid stock market performance. Still, that optimism is striped with caution,” he says.
 
For the new study, “US Institutional Equity Trading 2014: Part 2 – Undercurrents of Change,” TABB Group spoke with 108 heads of trading at asset management firms across the US during Q4 2013. Interviews covered commission wallet; shifts in order allocation and rates; broker preferences; trading in the dark as well as trading with blocks and algorithms; and views on current market structure. It also explores the impact of buy-side initiatives, decisions and behaviour on brokers, views on performance and coverage, and their outlook for 2014. Part one, “US Institutional Equity Trading 2014: Bellwethers of the Buy Side,” published earlier this year, focused on buy-side drivers and emerging trends amongst bellwether firms. 
 
This year, says Tabb, participants nominated brokers that stand out as “best-in-class” across eight categories - market colour, flow, risk, agency trading, algorithmic broker, execution consulting, analytics and market structure - independent from any commission or amount of order flow directed to that broker.
 
“We wanted to compare perception of excellence with actual distribution of commission wallet, exploring the extent to which these services bring in incremental revenue, are prerequisite table stakes or shape the brokers’ products,” he says.

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