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August 31, 2004

Portfolio Trading on the Rise

By Gregory Bresiger

Portfolio trading continues to be more popular among institutional traders because it delivers significant savings, according to a survey by Greenwich Associates. Traders are using portfolio trading for 50 percent of their volume, compared to 44 percent last year, the survey notes.

"Institutions are lowering costs by using portfolio trading for a larger proportion of their volume and by directing a portion of those portfolio trades to self-directed electronic trading systems," says Jay Bennett, a consultant with Greenwich Associates. "In addition, they appear to be saving money by doing more risk trades as opposed to agency business. Combined, these trends represent a big win for the institutions."

The survey had responses from 185 large desks. The average amount of equity business directed to portfolio trading was about $7 billion. That's about a 7 percent increase compared to the previous year, according to Greenwich.

Average commissions declined over the last year to 2.2 cents from 2.5 cents in 2003, according to the Greenwich survey. That's because about one-third of those polled report average commissions rates of less than one point five cents a share.