RBC Capital Markets is singularly dominant in the Canadian equity brokerage space, according to a new report from Greenwich Associates, which cites the firm’s research and advisory capabilities, and its strong presence in electronic trading.
The report from Stamford, Conn.-based Greenwich is based on interviews with 60 institutional portfolio managers and 59 institutional traders about the brokers they use for Canadian equities.
RBC captured 15.2% of institutional trading commissions in Canadian equities last year, the results show, far surpassing its nearest competitor, BMO Capital Markets, which achieved a share of 12.5%.
RBC “leads the Canadian equity brokerage space by an extent rarely seen in other markets around the world,” Greenwich says.
The “Big Five” Canadian full-service brokers collectively dominate the equity trading business, Greenwich notes, largely thanks to their franchises in equity research/advisory services.
While some brokers capture incremental trading business above and beyond what’s generated by their research functions, “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,” Greenwich says.
“All of the leading brokers complement full-service trade execution, investment banking and capital markets capabilities with a robust, high-quality research component,” says Jay Bennett, a Greenwich Associates consultant.
“Brokers and research providers in the market’s second tier are a mix of regional Canadian banks, foreign brokers and specialist research providers often focused on the energy, metals & mining and financial companies that make up such a big part of the Canadian market,” Bennett says.
Electronic trading
Electronic trading capabilities are also influencing the competitive positioning of Canadian brokers, Greenwich reports, with electronic trading accounting for about 8%-10% of the overall annual institutional pool of commissions collected by brokers on trades of Canadian equities.
While this is far less than the 15% of total institutional commissions that are now being generated by electronic trades in the U.S., Greenwich says that Canadian brokers realize that e-trading is becoming an ever more important driver of trade volumes and commissions.
ITG is widely seen as having been the “first mover” in electronic trading, and is used by 79% of institutions for electronic execution, Greenwich reports.
RBC is next with a market penetration score of 64%, followed by Liquidnet at 45%, and Credit Suisse, CIBC and Bank of America Merrill Lynch, which are tied with market penetration scores of 28%-34%, Greenwich notes.