Greenwich Associates, a market intelligence and advisory services firm, released a report today that showed equities brokerage commissions dropped for the eighth consecutive year. The firm noted that the impact of MiFID II and technological developments were largely responsible for the continuing decline.
Commenting on the results of the report, Richard Johnson, Vice President of Greenwich Associates Market Structure and Technology, said: “Looking forward, the buy side expects to reduce reliance on investment bank research even further, looking instead to boutique research firms and emerging technology-driven solutions. These changes will certainly not alleviate the pressure on bank equity trading revenues.”
The continual decline in broker commission revenues has traditionally been attributed to ongoing decreases in trading activity. This has combined with lower portfolio turnover among investors, making life tough for equity brokers.
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More recent developments have also taken a substantial toll on the industry too. Institutional investors have been shifting their equity trading from brokers to electronic systems, including algorithmic trading systems.
MiFID II, the regulation whose name seems to never end echo across the financial services industry, has also been responsible for a decline in equity brokerage commissions.
Under the regulation, which went live at the beginning of 2018, research costs must be priced explicitly and separated from execution. Research costs also cannot be connected to the volume or value of transactions. As a result of this, brokers have seen a decline in the level of funding they receive for US equity research.
With increasing regulatory pressure, jobs becoming automated and shrinking client activity, it seems as though the trend of decreasing equity brokerage commissions will continue for the foreseeable future.