Low-touch electronic trading across the European equity markets will account for €2.1 billion in commission revenue by 2010, but sales trading is declining, according to a new report from TABB Group.
The buy-side will execute half its trades through sales traders by 2010, compared to 82% in 2005, and sales trading revenues will continue the 9% annual decline suffered over the last three years, the study predicted. Nevertheless, sales trading remains a “critical” function.
“If innovation and competition bring new forms of liquidity, it will become inherently harder to find,” said Kevin McPartland, senior analyst, TABB Group and author of ‘European Equity Trading 2008: Liquidity, MiFID and the Brokerage Relationship’, This means greater automation of trade execution induced by MiFID (Markets in Financial Instruments Directive) does not spell doom for the sales trader, “just as the sales trader does not prohibit the growth of electronic trading”, said McPartland. “Even for electronic trading clients, the expertise provided by the sell-side broker remains invaluable in navigating the markets and its complexities.”
McPartland also predicted that the bulge-bracket firms would continue to dominate in all areas of equity trading because of their global reach and sophisticated technology.
Andrew Howieson, managing director, Tabb Group Europe, added, “Despite its reach across Europe, slightly more than 50% of buy-side traders see no current impact from the regulation but for those affected by MiFID, the number one concern focuses on new reporting requirements and other necessary documentation driven primarily by best-execution rules.”
The study is based on conversations with 61 buy-side traders from traditional asset management firms dealing in European equities.