New faces top US equity execution and research

It might just be possible to hear Paul Henreid’s famous order from ‘Casablanca’ to “round up the usual suspects” when looking at the top broker-dealers in terms of execution and research in US equities.

The same global broker-dealers appear year after year in terms of market share, execution quality and research quality for a relatively small club. Their positions in individual categories may change frequently or not.

This year, however, a few new and unlikely names have joined the club in some unexpected categories, according to findings from industry research firm Greenwich Associates, published in its  ‘2014 Greenwich Leaders: US Equities’ report. 

Whilst Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley all competed to provide the best quality equity execution and research, Greenwich Associates cited RBC Capital Markets as one of the two leaders in US equity electronic trading quality along with Credit Suisse. 

Credit Suisse comes as no big surprise as the Swiss banking giant has continually invested in its low-touch electronic Advanced Execution Service (AES) for more than a decade now.

One the other hand, RBC Capital Markets is reaping the rewards of a global trading infrastructure revamp that began in 2009 under the supervision of Brad Katsuyama, then global head of electronic sales and trading at RBC, who has since left and became the president and CEO of the IEX alternative trading system.

When I spoke to Katsuyama and other RBC traders in 2011, the broker-dealer was in a midst of replacing it legacy electronic trading infrastructure in its Toronto, New York and London offices with new network connections incorporating low-latency switches from Arista and a hardware-based middleware system from Solace Systems that enabled RBC to push its business logic down into the hardware.

At the time, Katsuyama and fellow RBC executives acknowledged that the bank was coming to the low-latency execution party later than Wall Street’s marquee firm, it allowed them to learn from the mistakes of their rivals.

Over the past three years, it appears that the broker-dealer managed to complete rolling out its next-generation global trading infrastructure with great success.

Yet in the world of small- and mid-cap broker-provided research, it is not a situation of a smaller firm punching above its weight class, as the report’s authors describe it, but global broker-dealers competing against mid-sized and specialist firms that typically cover these more illiquid equity listings.

This year, JP Morgan and Credit Suisse ranked second and fourth respectively as Robert W Baird, Raymond James and Stifel Nicolaus rounded out first, third and fifth place.

Is it a drive by the global firms to reduce what they pay out in terms of commission sharing agreements? The experts at Greenwich Associates never say it specifically, but suggest that research firms make sure they are paid reasonably for the research they provide.