Greenwich Associates Names 2015 Share and Quality Leaders in U.S. Equity Research and Trading
U.S. institutional investors are casting a wide net in their search for liquidity and investment ideas by maintaining relationships with scores of U.S. equity brokers and research providers. That dynamic has not undermined the leadership position of the four full-service brokers, which have increased their lead over rivals in terms of commission share in U.S. equity trading and research/advisory services.
As part of 2015 U.S. Equity Investors Study, Greenwich Associates interviewed 243 institutional portfolio managers and 321 institutional traders about the brokers they use for U.S. equities and the results show Goldman Sachs, J.P. Morgan, Bank of America Merrill Lynch and Morgan Stanley deadlocked atop the U.S. equity trading business with commission shares of 8.2–8.7%. Credit Suisse rounds out the top five with a share of 6.9%. Those firms are the 2015 Greenwich Share Leaders in U.S. Equity Trading.
The 2015 Greenwich Quality Leaders in U.S. Equity Sales Trading & Execution Service are Goldman Sachs, J.P. Morgan and Morgan Stanley.
In U.S. Equity Research/Advisory Vote Share, the same four firms lead the market, with J.P. Morgan and Bank of America Merrill Lynch tied at the top with commission-weighted shares of 9.1–9.4%, followed by Morgan Stanley and Goldman Sachs, which are statistically tied with vote shares of 8.1–8.5%.
The 2015 Greenwich Quality Leaders in U.S. Equity Research Product & Analyst Service are J.P. Morgan, Morgan Stanley and Sanford C. Bernstein.
Institutions Seeking Liquidity and Alpha Support Long List of Brokers
Full-service investment banks that make up the top rank of the U.S. equity brokers have been forced to reassess their business models to contend with changes in regulation and market structure and as a result, most of these leading brokers are more selective in their coverage and less focused on amassing market share from any and all institutional clients.
“As these shifts played out over the past 12 months, a clear separation has emerged between the biggest brokers and the rest of the market in terms of share in both research/advisory services and trading,” says Greenwich Associates consultant Jay Bennett. “The result is a segmented market composed of the four leading firms, the rest of the bulge bracket, and a long tail of competitors with relatively smaller shares.”
That long tail of brokers is supported by institutional investors that are using anywhere from 35 to 60 brokers on average for research/advisory services and about 40–60 brokers for equity trading.
“Institutions are hungry for liquidity and for alpha-generating investment ideas,” says Greenwich Associates consultant John Feng. “The best way to secure access to these essential items is by maintaining relationships with large numbers of full-service investment banks, regional or mid-sized broker dealers and specialist firms.”
Performance Influenced by Research, Electronic and Portfolio Trading Platforms
Buy-side trading desks allocate about 60% of their U.S. equity trade commission payments to compensate providers of research/advisory services, including analyst service, sales, corporate access, and other services.
Several firms get a sizable boost in trading due to their strength in electronic trading. “Low-touch” electronic trades now make up about 45% of overall U.S. equity algorithmic trading volume and about 15% of the annual commission pool.