While equity trading costs per transaction in Europe have fallen considerably since 2006, the costs per traded value have increased, according to a study published by the European Commission.
The study, carried out by Oxera Consulting, analyses the changes in trading and post-trade prices, costs and volumes across for equities and fixed-income securities for 18 financial centres in Europe between 2006 and 2008. Oxera surveyed more than 40 fund management firms, almost 40 brokers and around 60 custodians. The firm said almost all trading platforms, CCPs and CSDs in Europe participated in the study.
According to the trading platforms surveyed in the study, on-order-book trade execution costs for equities Europe-wide fell 33% to €0.79 in 2008 from €1.18, but the cost expressed as basis points of the value of trading increased 9% to 0.47 basis points in 2008 from 0.43 bps in 2006.
The trend was also clear in Europe’s biggest markets. The study considers France, Germany, Italy, Spain, Switzerland and the UK to be ‘major’ markets.
In France, for example, per-transaction on-order-book costs fell 18% between 2006 and 2008, but per-value costs increased by 36%. In Switzerland, per-transaction costs dropped 30%, but per-value costs rose 25% and in the UK per-transaction costs dropped 52% but per-value costs grew by 1%. In Germany, costs per transaction declined 36% but cost per value remained static.
One explanation for the phenomenon could be dwindling order sizes. Oxera said that more detailed analysis, including whether the difference in changes could be explained by changes in trade size, could provide more detailed insights into the statistics.
However, the survey found that costs of off-order-book equities trading fell across the board. Costs per transaction declined 54% to €0.55 in 2008 from €1.19 in 2006, and per-value costs also fell 54% to 0.027 bps from 0.060 bps.
The survey also revealed a drop in central counterparty (CCP) costs. According to the CCPs surveyed, the cost of equity CCP services per transaction dipped to €0.18 in 2008 from €0.37 in 2006.
However, there has been little change in the cost of services provided by central securities depositories. While the cost per transaction for clearing and settlement services fell to €0.51 in 2008 from €0.52 in 2006, the cost of account provision and asset servicing, expressed as basis points of the value of securities held, increased to 0.17 bps from 0.15 bps.