Wednesday, July 27, 2016 Stamford, CT USA — Mid-sized/Regional brokers’ share of commission payments from institutional U.S. equity trades is increasing, according to a new report from Greenwich Associates. 

As recently as 2007, the nine leading “bulge-bracket” brokers captured 78% of commissions paid by institutional investors on trades of U.S. equities. This year, they are claiming only 60%--down a full two percentage points from 2015. Much of the lost share has flowed to mid-sized/regional dealers, which as a group now take home 28% of U.S. equity commissions, up from just 11% in 2007.

“In recent years, smaller firms have capitalized on the changes taking place in the industry, which is feeling the pain of a long-term contraction in the size of the trading commission pool overall,” says David Stryker, Greenwich Associates consultant and author of the new report, Up for Grabs: Money in Motion in U.S. Equities. 

Although Greenwich Associates research shows that the overall U.S. equity commission pool has remained relatively flat over the past three years, the current total of roughly $9.65 billion is down more than 30% from its peak in 2009.

There is no evidence to suggest that the squeeze on brokers will ease anytime soon. As part of its annual U.S. Equity Investors Study, Greenwich Associates asked 321 traders in 2016 how they expected their use of specific brokers to change over the coming 6-12 months. Forty-seven percent expect to cut back the share of commissions they allocate to at least one of their brokers, meaning that at least $100 million of secondary cash equities commissions will be up for grabs.

What do these trends mean for the sell side? Taken together, it is clear that brokers providing consistent and high-quality service stand to win. The study results reveal that those sell-side firms that clients judge as providing “excellent” service typically earn an additional 100-200bps of commission share than those that clients rate as “above average.” And a client typically allocates 100-200bps more to a broker it feels provides “above average” service than one that provides just “average” service.

“Brokers need to recognize that capturing commission share is increasingly a zero-sum game, and those who can outcompete their peers will best positioned to succeed,” says Greenwich Associates consultant David Stryker.