Wednesday, May 30, 2018 Stamford, CT USA — Total U.S. equity commission payments from institutional investors to brokers have fallen for eight consecutive years and are now down 45% from their peak.

Those numbers from the Greenwich Associates 2018 U.S. Equity Investors Study illustrate the difficult environment faced by U.S. equity brokers. The persistent declines in broker commission revenues, which have long been attributed to decreased trading activity and lower portfolio turnover among investors, have also been driven by two additional factors. 

First, institutional investors—especially the largest institutions, continue to shift their U.S. equity trades from “high touch” trades using broker sales traders to “low touch” algorithmic and other, much lower-cost, electronic trades. Second, for the past two years, institutions have reduced the amount of broker commissions used to pay for U.S. equity research. This is in part due to an increased focus on research costs, triggered by the MiFID II regulations in Europe. 

“Looking forward, the buy side expects to reduce reliance on investment bank research even further, looking instead to boutique research firms and emerging technology-driven solutions,” says Richard Johnson, Vice President of Greenwich Associates Market Structure and Technology and author of the new report Low-Touch Trading Grows as Commission Wallet Shrinks. “These changes will certainly not alleviate the pressure on bank equity trading revenues.”