Asian buy-side firms’ use of self-directed electronic execution tools for equity trading is increasing steadily, according to a new interview-based study by research and consulting firm Greenwich Associates.
Greenwich’s Asian equity study, which polled 256 Asian equity fund managers and analysts, plus 89 traders and 58 users of derivatives at Asia-based investment managers and hedge funds, found that institutions’ share of total equity trading conducted using self-directed electronic trading methods increased to 18% in 2009 from 15% in 2007-2008.
By comparison, electronic execution accounts for 20% of trading volume in European and Japanese markets and 35% in the US.
The growth in electronic trading has decreased the share of full-service executions facilitated by brokers’ sales traders to 78% in 2009 from 80% in 2007-2008.
“Although it’s taking place gradually, the adoption of electronic trading by Asian institutions will have a significant impact on the equity trading business here,” said John Feng, managing director at Greenwich, in a statement. “By 2012, Asian institutions expect to reduce ‘high touch’ trading to 68% of total equity trading volumes, with self-directed electronic volume growing to 28% and portfolio trading holding fast at 4-5%.”
The growth of low-touch trading methods in Asia is also driving down blended commission rates in Asia. Average rates across the region ranged from 19-26 basis points. Meanwhile, average rates on agency portfolio trades held steady at 10 bps and average rates on self-directed electronic trades were stable at 6 bps.