TABB Group’s new industry benchmark study released yesterday, “Institutional Equity Trading in Europe 2007: The Buy-side Perspective”, predicts that, driven by three distinct trends – unification, technology and transparency – Europe will create a far more efficient landscape for investors and asset managers than it has in the past.
According to Adam Sussman, senior research analyst and the study's author, "These trends position Europe for rapid growth in electronic trading as we see both direct market access and algorithmic trading flow growing at an approximate compound annual growth rate of 50% through 2009."
While European harmonisation is moving forward, Europe's independence is still strong, says Sussman. "Cultural and geographic differences will not disappear quickly, which is why less than 33% of the buy-side believe that a single market structure will take hold in the next five years. Even after MiFID is adopted into law and implemented across the 30 countries, a grand unification of capital market is not in the cards for at least a few decades."
The interview-based study with 54 exhibits is based on conversations with 70 different buy-side firms trading European equities located in 20 different countries, including the EU-15 and the UK. The study covers a broad range of topics including MiFID, the emergence of new execution venues, desktop trading technology, advanced execution strategies, commission rates, commission sharing agreements (CSAs) and the impact these trends are having on the relationship between the buy-side and sell-side.
The study finds that 55% of the buy-side believes MiFID will have a significant impact on how they execute their orders, the greatest change being the fragmentation of liquidity across a host of new venues such as Project Turquoise, Instinet's Chi-X and Equiduct.
By 2009, over 58% of the buy-side will be using algorithms, up from 41% in 2007 and the percentage of orders routed via FIX rose from 39% to 44% over the last two years, rising to 55% by 2009 with an additional 10% routed via other electronic methods, the study predicts.