Almost 75 per cent of US institutional equity managers expect global share broking services will become “fully unbundled” in the next five years, according to a new survey.
The Equities Leaders Summit ‘Benchmarking report’ found 61 per cent of those surveyed said global market ‘unbundling’ – where broker execution services must be separated from other offerings such as research or technology – was ‘somewhat likely’ to occur in the next five years while 12 per cent said it was ‘very likely’.
The UK and European Union introduced new rules this year (due to take effect in 2017) forcing brokers to split out dealing commissions from research costs in an attempt to remove conflicts of interest.
Ellen Reevey, WBR Equities Leaders Summit conference director, says the survey result “reflects the prediction that America and Asia will follow the path of European regulators in regard to unbundling”.
“However, when asked about the impact of unbundling, buy-side traders believed that only 27% of money managers would comply with this conservative regulation,” Reevey says in the report.
Nonetheless, the survey found 80 per cent of US institutional equity managers planned to in-house more services rather than relying on external brokers for resources such as research and technology.
“There has been an undeniable buy-side quest for transparency in US markets, and that sentiment is reflected by the significant portion of traders looking to become more autonomous,” Reevey says. “With more technology available to the buy-side, it’s clear that traders are capitalising on this and taking matters into their own hands.”
Over 40 per cent of those surveyed said the European unbundling would improve data and research quality while about a third said they would use brokers less following the rule change.
“This suggests that the buy-side will get their research from data providers as opposed to brokers, and that this research will be far more accurate,” Reevey says.
The study also found:
- about two-thirds of respondents expected further consolidation of stock exchanges with about half viewing the trend as positive; and,
- 45 per cent planned to increase trading in dark pools to improve liquidity with 43 per cent also seeing “buy-side to buy-side trading initiatives”.
For the report, Equities Leaders Summit surveyed 50 senior buy-side traders, mostly comprising “heads of trading, CEOs and senior management from leading asset management firms and hedge funds”.
The report was compiled to coincide with the WBR Equities Leaders Summit held in Miami last week,