Where can traders pay the cheapest commission rates on their equity trades? And does it matter who a trader is in the pecking order to determine what he pays?
Most investors understand that commission rates on equity trades vary from country to country and from developed to emerging markets, but new research from Greenwich Associates reveals that rates also vary to a huge extent from investor to investor within markets.
To help traders maximize their efficiency and maintain solid alpha generation, Greenwich conducted its first global comprehensive commission rate study titled, “Equity Trade Commissions: Rate Vary Broadly Across and Within Markets.” The report showed that bundled rates (including research and execution) range from 14-15 basis points in developed market to over 25 bps in emerging markets.
During November and December 2014, Greenwich Associates interviewed heads of equity trading at 99 North American and 31 European institutions regarding the typical commission rate paid across 45 different markets.
Within these broad ranges, however, Greenwich found wide variations at the individual account level based on the diversity of investment strategies pursued by institutions (active, passive, mixed), variations in their level of reliance on outside research, and practice differences in funding research budgets.
For example, even in a highly developed market such as the United Kingdom, reported bundled rates range from a minimum of 6 bps to a maximum of 22.5 bps, and rates for high-touch execution range from only 2.6 bps to 15.0 bps. High-touch “tack-ons” range from 2.0 bps to 15.5 bps.
“One of the study’s most interesting findings was that large institutions don’t report meaningful discounts,” said John Colon, a consultant at Greenwich. “Surprisingly, commission rates paid by institutions classified as Greenwich Associates “Large Accounts” don’t differ meaningfully from overall averages.”
The survey looked at 45 country markets and offered benchmark data for High-Touch and Single-Stock Agency Trades (Bundled, Execution-Only and Tack-On Rates), Electronic/Algorithmic Trades (Execution-Only Rate, Tack-On Rate) and All-In Blended Rates.Twenty-three are categorized by MSCI as developed markets and 22 as emerging markets. Desks were asked for their overall bundled commission rate, high-touch execution-only rate, electronic execution rate, tack-on rates for both high-touch trades and electronic trades, as well as their all-in blended rate.