Worse-than-expected equity volumes in Europe will put pressure on major brokers to invest in electronic trading systems to remain competitive by exploiting economies of scale.
Research consultancy Greenwich Associates' annual ”European equity investors study' found that equity trading commissions only increased by around 7% between Q1 2010 and Q1 2011, lower than the 11% rise anticipated by participants in last year's study. However, institutional investors remain buoyant, with survey respondents estimating a 12% hike in Europe's overall commission pool for 2011-2012.
The only way for non-top-ranked brokers to gain market share, Greenwich concluded, was through offering sophisticated electronic and portfolio trading capabilities or through capital commitment, though it admitted that new capital requirements could limit the sell-side's ability to provide the latter. The firm added that brokers' electronic trading capabilities must build scale across Europe and beyond to ensure such offerings are cost effective and diversified.
Greenwich ranked Credit Suisse and UBS as the leading brokers in Europe in terms of institutional commissions with Deutsche Bank and UBS tied for the top spot in terms of the European equity research/advisory services.
“Global financial service firms need a strong presence in European equities, not just for the sake of equity revenues and profits in themselves, but also as a means of supporting their broader investment banking franchise across Europe and the world,” said Greenwich Associates consultant Jay Bennett.