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Morgan Stanley, Bank of America Merrill Lynch and Citi Tops in Asian Equity Trading
Traders Magazine Online News, February 8, 2019
Although a tumultuous 2018 ended up being a positive year for most leading Asian equity brokers, the industry enters 2019 facing profound questions about how changes in regulation and market structure will affect the traditional institutional brokerage business model.
The two most profound changes are new rules on equity research payments put in place by European regulators in MiFID II and the continued “electronification” of Asian equity trading.
Amid these shifts, Morgan Stanley has remained the leading Asian (ex-Japan/Australia) equity broker in terms of both trading and research/advisory services. In trading, Morgan Stanley is trailed closely by the trio of Bank of America Merrill Lynch, Citi and Credit Suisse, which are statistically tied in terms of market share, and then by J.P. Morgan, UBS and CLSA Asia-Pacific Markets, which are also tied. These firms are the 2018 Greenwich Share Leaders in Asian Equity Trading.
The 2018 Greenwich Share Leaders in Asian (ex-Japan/Australia) Equity Research/Advisory Services are Morgan Stanley, Citi, Credit Suisse, UBS, Bank of America Merrill Lynch and J.P. Morgan, the last three of which are tied in terms of their share of the institutional research/advisory “vote.”
MiFID Reshaping Business Models
MiFID II went live in Europe in January 2018, but its impact has spread far beyond the Eurozone. For the 12 months ending Q3 2018, Greenwich Associates estimates that institutional investors based in Asia paid brokers $2.8 billion in commissions on trades of Asian equities—up about 10% from the prior year. About 52% was used to compensate providers for their Asian equity research/advisory services by the average investor, though the proportion is much lower at 40% among larger institutions, both well below 60% levels in 2017.
Meanwhile, the share of investor spend allocated for execution-related services jumped to 48% on average and to 60% among larger funds.
“Given that this is the first year of MiFID II, it is too early to predict the precise long-term impact, but many of these changes are here to stay,” says Greenwich Associates Managing Director John Feng. “The one thing that is certain is that every full-service broker is reassessing its business model and resource allocation in light of these changes.”
E-Trading and Technology are Changing the Game
For the first time, large institutional investors (excluding HFT firms) last year split their Asian (ex-Japan/Australia) equity trading volume evenly between traditional “high touch” single-stock trades executed by broker sales traders and “low-touch” trades made up of algorithmic, crossing and portfolio trades. These institutions expect single-stock electronic trading alone to comprise 49% of their execution volume within three years, with growth coming at the expense of both high touch and portfolio trades.
“There is increasing overlap between the list of Greenwich Share Leaders in e-trading, and Share Leaders in Asian equity brokerage overall,” says Greenwich Associates Principal Parijat Banerjee. “It’s clear that brokers see e-trading capabilities as a key driver of future growth.”
Morgan Stanley and Bank of America Merrill Lynch top the list of 2018 Greenwich Share Leaders in Asian Equity Algorithmic Trading, followed by UBS, Citi and Credit Suisse, which are statistically tied.
Click here for the full list of 2018 Greenwich Share and Quality Leaders
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