Institutional equity commissions continued to grow over the past year, but that growth is expected to slow in the year ahead, according to new research from Greenwich Associates.
Greenwich reports that total commissions paid by Canadian institutions on trades of Canadian stocks rose 11% to an estimated $770 million for the 12 months ended mid-February 2012, which is up from an estimated $695 million for the same period a year earlier. On a matched-sample basis, commission spending for a typical buy-side institution increased 8% to $8 million, it says.
The firm reports that buy-side traders are also cautiously optimistic for this year, expecting the Canadian cash equity commission pool to increase 3%-5% on average by year end.
“While the brokerage business has been pressured by low volume and stock prices, the modest rate of recovery may mean commissions paid could move back toward their 2008-2009 level based on institutions’ expectation of reaching $800 million in spend by the end of this year using their 5% growth expectation,” says Greenwich Associates consultant, Jay Bennett.
The growth in the Canadian market has outpaced the corresponding U.S. market, Greenwich says, due to strong Canadian sectors such as oil and gas and metals and mining. That said, it also notes that institutions are looking for ways to reduce costs, and says they are turning to electronic trading to extract more value from the commission dollars they pay to brokers.
Over half of those commissions (59%) — approximately $455 million of $770 million — was directed to compensating brokers for research and advisory services, including sales and corporate access, the firm reports. Execution services accounted for the rest.
“The lion’s share of spend is still for access to analysts and companies, whether it’s through analysts, directly to the C-level or by conferences,” Bennett says. “They look for advisory services that are well managed and chaperoned by a sales team directly to the company’s management.”
Greenwich reports that RBC Capital Markets captured the top Canadian equity trading and research/advisory share, and also shared the lead in equity trading share of commissions with both TD Securities and BMO Capital Markets.
The Greenwich Quality Index, a composite of client evaluations of the managers’ equity trading franchises in a variety of product and service categories, ranked RBC Capital Markets as a leader in all quality categories. It also shared the Equity Sales Quality Award with BMO Capital Markets and Scotiabank, and tied with TD Securities for the Equity Trading Quality Award.