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Low-Touch Share of 2014 European Equity Trading Commission Wallet Will Exceed 40% for First Time, Says TABB

Following up on the recently issued first part of its annual benchmark research study covering European equity trading focused on transaction cost analysis (TCA) and research, TABB Group today published part two, “European Equity Trading 2014: Low-Touch Domination Takes Off.” According to TABB, low-touch channels in 2014 are anticipated to receive more than 40% of the commission wallet for the first time, jumping from 35% to 42% in 2013, amidst changes beginning to impact the status quo, including bulge-bracket banks’ dominance in electronic trading across Europe being challenged.

Rebecca Healey, a TABB senior analyst who authored both studies, says that over 60% of the buy-side are now selecting algorithms according to strategy, not the underlying broker, a changing selection process impacting how brokers need to adjust their low-touch offerings in 2014. “The ranks of the leading buy-side head traders who appreciate that they need to rely on greater technology, rigorous analysis and improved trading processes to survive are swelling.”

In part two of this 34-page annual buy-side equity trading study with 45 exclusive exhibits, TABB’s seventh in Europe, they pinpoint changes in algorithm and dark pool usage by average daily volume; top algorithm providers in 2013 and those to watch in 2014; commissions paid and geography; how firms are responding to the impact of increased regulation; changes in TCA providers and usage; IT spend indicators for 2014; new products to be traded electronically; and changes in the OMS/EMS space. Interviews were conducted during the fourth quarter of 2013 with 58 head traders of equity management firms across Europe, the UK and US, comprised of 49 long-only asset management firms and nine hedge funds, managing €14.6 trillion in assets under management (AUM).

A sampling of part two’s top 10 findings include:

  • 55% of the buy side plan to increase algorithm usage in 2014.
  • Although 57% continue using the same number one provider as in 2012, nearly one-third plan to increase their number of algorithm providers in 2014.
  • Execution Consultancy remains the top opportunity for brokers to differentiate their low touch offerings.
  • Country-specific regulation is proving to be a serious issue, forcing many to reduce trading in affected countries.

As automation in the execution space permeates across the asset classes and into additional products and services, Healey says that low touch will no longer reflect merely a dumbing down of execution but a wider quantitative adaptation of technology encompassing short-term alpha within the investment decision. “While technological leaders will continue to remain at the forefront, it will be the shift to technology by the moderate majority that TABB believes will deliver greater radical change throughout the industry. Low-touch domination is set to take off.”

The new study is available for download by TABB Group Research Alliance Equity clients and pre-qualified media at http://www.tabbgroup.com/Login.aspx. For a copy of the Executive Summary or to purchase the research, write to [email protected].

About TABB Group

Based in New York and London, TABB is the research and consulting firm focused exclusively on capital markets, based on the interview-based, “first-person knowledge” research methodology developed by Larry Tabb. In 2010, TABB launched TabbFORUM, the online capital markets community for peer-to-peer contributed opinion and analysis covering current issues, tracked daily by 20,000-plus professionals; in October, 2013, QuantFORUM went live, an online channel for the global quantitative investing community.

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