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August 1, 2011

High-Touch, Research Up In Survey

By John D'Antona Jr.

Indeed, the survey shows U.S. equity trading volume executed via high-touch trades increased to 60 percent from 55 percent, as institutions shifted priorities from minimizing trading costs to paying for essential research and advisory services.

Despite the increase in high-touch trading, algorithmic trading did not see a decrease in usage, as institutions in the 2010 to 2011 period executed 19 percent of total U.S. equity trading dollar volume through algos-the same as in the prior survey.

The average U.S. institution covered by Greenwich Associates paid $23.5 million in brokerage commissions on trades of domestic equities for the 12 months covered in the survey, which ended January of this year. That's down from $27.2 million the prior year.

Despite the drop, the survey reported that most institutions entered 2011 "guardedly optimistic" about this year. Greenwich reports that institutions, on average, expect this year's U.S. equity commission pool to increase by 8 percent.

Mutual funds are the most bullish, looking for commissions to jump 13 percent, while at the other end of the spectrum are pension funds and endowments. These latter groups are expecting commission payments to contract by 1 percent.

"There is a lot of focus on alpha-generating research, especially for the pension funds, who have been looking at hedge funds," Bennett said. Since the funds need to generate rates of return around 8 percent or better to meet their liabilities, investing in equities isn't as appealing, compared to the offerings of hedge funds, he added.

Greenwich data showed that currently 59 percent of commission spend is used to pay for equity research, advisory services, sales coverage and corporate access-up from 53 percent for the last survey period. Meanwhile, the amount of "free business" devoted to sales trading and agency took a hit and dropped to 30 percent in the 2010-2011 period.

The total amount spent on sellside research and services during the 2010-2011 period was $6.8 billion, off slightly from the $7 billion in the previous survey.

 


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