Thursday, January 19, 2017 Stamford, CT USA — Three global brokers are pulling away from the pack in the Asian equity research/advisory business — a break from historical patterns characterized by a more gradual slope among the major competitors.
Credit Suisse, Bank of America Merrill Lynch, and Morgan Stanley are statistically deadlocked atop of the list of 2016 Greenwich Share Leaders in Asian Equity Research/Advisory Vote. These three firms have opened a significant lead over UBS, CLSA Asia-Pacific Markets and J.P. Morgan, which are virtually tied in terms of vote share and round out the list of this year’s winners.
In Asian Equity Trading, the same three firms are statistically tied for the top spot in overall share, but in this business, their lead over fellow Greenwich Share Leaders CLSA, UBS and Citi is much narrower. In the growing algorithmic trading business, Bank of America Merrill Lynch widened its lead over the competition. Credit Suisse and Morgan Stanley claim the title of 2016 Greenwich Quality Leaders in Asian Equity Research Product & Analyst Service, and along with Bank of America Merrill Lynch are the Greenwich Quality Leaders in Sales and Corporate Access. In Sales Trading & Execution Service, the 2016 Greenwich Quality Leaders are Bank of America Merrill Lynch, Credit Suisse, Morgan Stanley and UBS.
These brokers spent much of 2016 battling for market share in a tough environment. The pool of commissions paid by institutional investors to brokers on trades of Asian equities shrunk by approximately 16%% from 2015 to 2016.
“While trading activities showed signs of a rebound as 2016 progressed, for most of 2016 the story in Asian equities was one of uncertain economic direction and a shrinking commission pool that forced investors and brokers to figure out ways to do more with less,” says Greenwich Associates Managing Director John Feng.
Ripple Effect of MiFID II
Amid this uncertainty landed another huge variable: MiFID II. Although MiFID II is a European regulatory initiative, many of the biggest and most active investors in Asia are global companies that must comply with new “unbundling” rules in Europe—and are likely to adopt changes globally.
When it comes to trades of Asian stocks, institutional investors are cutting back on the share of their commission payments used to compensate sell-side providers of equity research and advisory services, including sales coverage and corporate access. In 2014, allocations to this function accounted for 65% of all cash equity commission payments. That share fell to 63% in 2015 and dropped to 61% in 2016. The drop-off was even more pronounced among the big institutional investors that account for the bulk of Asian equity trading volume and commission payments. Among these large institutions, the share of commissions allocated to research and advisory services plummeted to 56% in 2016 from 64% in 2014.
Greenwich Share and Quality Leaders
Between July and September 2016, Greenwich Associates interviewed 219 Asian equity fund managers and analysts, 128 buyside trading desks and 42 users of equity derivative products in Asia. Study participants were asked to name the brokers they use in specific products, to estimate the amount of business they did with those firms, and to rate the quality of these brokers in a series of service and product categories. Brokers receiving quality ratings topping those of competitors by a statistically significant margin were named Greenwich Quality Leaders.