Greenwich Associates - European Equity Brokerage: the Calm before the Storm?

New Regulatory Proposals Could Upend Brokerage Business Model

Greenwich Associates Announces 2014 Share and Quality Leaders in European Equity Brokerage

STAMFORD, Conn.--()--Although on the surface things seem relatively placid in the European equity industry, recent regulatory changes by the U.K. Financial Conduct Authority related to corporate access and the proposed “full bundling” model proposed by ESMA could also lead to the most radical change in the business models of European equity brokers in a generation.

“If implemented in current form, investors would have three choices: 1) Cut a check to research providers and absorb the cost, 2) Pay providers and pass along costs to customers, or 3) Stop buying the research altogether”

Such changes would likely eliminate the commission sharing arrangements now relied on as a primary revenue source by many small research providers and could more broadly upend the business model of full-service brokers. “If implemented in current form, investors would have three choices: 1) Cut a check to research providers and absorb the cost, 2) Pay providers and pass along costs to customers, or 3) Stop buying the research altogether,” says Greenwich Associates consultant John Colon.

Impact of Unbundling

Unbundling would have a seismic impact on the industry as a whole, since revenue generation and market share among of European equity brokers is largely determined by the breadth and depth of their research arms. Approximately 60% of all brokerage commissions paid on trades of European equities are used to pay for research and advisory services, meaning that research-related equity commission payments amount to roughly €1.5billion annually.

2014 Greenwich Share Leaders

UBS and Morgan Stanley are the two leading providers of European equity research. Each firm receives between 8.8% and 8.5% of the internal “research votes” that determine commission allocations among institutional investors and are the 2014 Greenwich Share Leaders in European Equity Research and Advisory Services.

UBS leads the European equity market in trading with a market share of 10.2% and is the 2014 Greenwich Share Leader in European Equity Trading.

UBS leads the field in electronic trading, with a market penetration of 63% in algorithmic or smart-order routing trading and is the 2014 Greenwich Share Leader in European Equity Algorithmic or Smart Order Routing Trading.

With a market penetration score of 54%, UBS also holds the top spot in portfolio trading and is the 2014 Greenwich Share Leader in European Equity Portfolio Trading.

2014 Greenwich Quality Leaders

Greenwich Quality Leaders are firms whose institutional clients award with quality ratings that top those of competitors by a statistically significant margin. The 2014 Greenwich Quality Leaders in European Equity Sales are Exane BNP Paribas and UBS.

The 2014 Greenwich Quality Leaders in European Equity Research and Advisory Services are Exane BNP Paribas, Morgan Stanley and UBS.

UBS is the 2014 Greenwich Quality Leader in European Equity Trading and Morgan Stanley and UBS together share the title of 2014 Greenwich Quality Leaders in European Equity Electronic Trading.

Contacts

Greenwich Associates

Joan Weber, +1-203-625-4354

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Release Summary

With broker commission payments leveling off in 2014, unbundling the European brokerage business could be the biggest change in a generation. UBS and Morgan Stanley are two leading providers.

Greenwich Associates