Buy-side traders believe broker offerings are becoming less bespoke due to demand for lower cost services, according to a study by WBR Research.
A survey of 58 senior buy-side trading personnel found that 68% believe brokers services have become more commoditised. While only 10% strongly felt this was the case, just 8% disagreed indicating that commoditisation is now widespread.
Broker selection criteria has also been heavily weighted towards those offering lower cost services, with 36% ranking it as the most important factor when deciding on which brokers to use.
With the buy-side demanding cheaper trading, it is unsurprising that brokers have sought to offer a more generic service in order to keep a lid on costs. However, it is unclear whether commoditisation is viewed as being detrimental to asset managers’ trading desks.
Commenting on the results, WBR said: “If the battleground is based primarily on price, then the commoditisation of the service is the inevitable result as brokerage firms compete for business.
“If that is not what the buy-side want, then they will need to take their share of the responsibility to elicit change and change the rules.”
The second biggest factor in broker selection was breadth of coverage, which matches up to buy-siders view that finding liquidity is one of their major concerns. Half of those surveyed said finding liquidity was one of their top three challenges.
The biggest challenge by far was regulation and compliance, selected by 67%, while reporting and transparency issues were a major concern for 39% of respondents.
Other key issues include software stability and reliability, data quality and accurate pricing, listed by 30%, 28% and 26% respectively.
By far the biggest worry surrounding regulation is the potential for increased costs. A large majority of 80% of firms believed that incoming regulations, such as Basel III, European market infrastructure regulation and Market in Financial Instruments Regulation, will result in increased costs for doing business.
A significant minority of 44% was also concerned that they would reduce market liquidity.
However, there are also some positives to be gained from increased regulation, and 52% said new regulations will increase risk awareness, while 32% think the changes will improve transparency.