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FLASHBACK FRIDAY: Commissions Continue Spiral

Flashback Friday sponsored by Instinet

Traders Magazine Online News, July 13, 2018

John D'Antona Jr.

The more things change, the more they stay the same.

U.S. equity commissions have been on the decline since shortly after the financial crisis – which ironically caused an initial spike in volatility, trading and commissions. Ask some traders around Wall Street and they can remember that commissions were upwards of $17 billion dollars in 2009 ( as reported by Tabb Group) back in the day – and all brokers flourished and got a taste of the “good life.”

Queue up the theme song “Those Were the Days,” as once played by the U.S. TV sitcom “All in the Family.”

But now queue up Bob Dylan’s “The Times they are a Changing.”

Just this week, market consultancy Greenwich Associates reported that U.S equity commission spend has dropped yet again. Amassing market share in U.S. equity trading commissions and in the institutional research/advisory “vote” is becoming more difficult and more important for brokers due to the long-term decline in the size of the equity trading business, Jay Bennett, author of the Greenwich study wrote. The pool of commissions earned by brokers on trades of U.S. equities within the Greenwich Associates universe contracted 9% last year to an estimated $7.65 billion.

That drop marked the fourth consecutive year of decline. The total amount of commissions collected by brokers on trades of U.S. equities has dropped by more than a third since 2011. In 2011 commissions were $11.55 billion.

“As the combination of limited volatility and growth in passive investing and lower-cost electronic trading constrains trading volumes and commissions, U.S. cash equities have become a zero-sum business in which taking share is pivotal,” Bennett told Traders Magazine.

Greenwich estimates that commissions should rise slightly for the 2019 commission survey to $7.95 billion.

So, who’s getting a share of the smaller commission pie?

As a whole, the equity brokers that qualify to be labelled “bulge bracket,” lead the U.S. equity market in terms of market share and quality leaders, according to a recent report from market consultancy Greenwich Associates. And this comes as the overall market and commission spend remain stagnant or in some cases, shrinking but one bank stood out among the rest - JP Morgan.

The consultancy wrote:

“In a shrinking and increasingly competitive market,  J.P. Morgan, Morgan Stanley, Goldman Sachs, and Bank of America Merrill Lynch secured the title of 2018 Greenwich Leaders in U.S. Equity Trading Share, with the group besting all rivals in market share across four U.S. equity categories.”

In trading, J.P. Morgan has established itself at the head of the pack in 2018 in part by building a commanding lead in U.S. Equity Algo Trading. The other Greenwich Share Leaders in this increasingly important category are Morgan Stanley and Bank of America Merrill Lynch.

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