Some things just don’t change.
Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley have all maintained their top 3 positions and rankings as the leading brokers of flow equity derivatives to North American institutional investors. It was the same trio last year, according to Greenwich Associates.
In Europe, where the flow equity derivatives field is more crowded, the field changes with Deutsche Bank, Morgan Stanley and J.P. Morgan in the lead as the tri have been busy establishing strong delivery platforms across these more esoteric products.
These results were published today by Greenwich Associates, and financial market research firm and consultancy. The importance of the rankings comes amid lighter trading volumes and the buyside’s ongoing desire to keep its list of brokers that is conducts business with short. As Greenwich noted, Investors use far fewer brokers in these products than in cash equities or fixed income. Institutions typically use only six or seven counterparties for equity derivatives trades and broker-dealer lists in cash markets are generally two to four times longer.
“Brokers that win these coveted relationships consistently combine the best prices with market insights and trading ideas,” said Jay Bennett, analyst at Greenwich. “Essentially, this is a bulge bracket business along with a limited number of other focused but very sophisticated firms competing.”
Greenwich broke down the derivative asset class into its sub-classes for further analysis.
Options & Volatility Products
Greenwich noted that users of options products in both North America and Europe cite competitiveness of index-option pricing as the primary factor considered when selecting a broker. Hedge funds also place a high value on brokers’ pricing of single-stock options and willingness to commit capital for trades.
Approximately two-thirds of North American institutions active in equity options and volatility products cite important trading relationships with Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley.
Almost 70 percent of European institutions active in these products cite important trading relationships with Deutsche Bank, J.P. Morgan and Morgan Stanley.
As in options and volatility products, investors in North America and Europe cite competitiveness of index swaps pricing as the most important factor considered when selecting a broker.
“Institutions want their brokers to help them use swaps to better manage risk, gain exposures and protect revenue streams and assets,” said Jay Bennett, another analyst at Greenwich. “In North America, long-only investors pay extra attention to the creditworthiness of their swaps counterparties, while prime brokerage relationships and credit provision more heavily influence broker selection for hedge funds.”
In North America, upwards of two-thirds of North American institutions active in equity swaps name Bank of America Merrill Lynch and Goldman Sachs as an important trading relationship. Morgan Stanley, Credit Suisse and J.P. Morgan are used by more than 50% of institutions.
Across the Pond in Europe, Deutsche Bank, Morgan Stanley and J.P. Morgan each claim important trading relationships with 54% to 57% of institutions active in equity swaps. Between 44% and 48% of institutions cite important trading relationships with Goldman Sachs, Bank of America Merrill Lynch and Societe Generale.
Greenwich wrote that even though investors use on average only three or four counterparties for futures trading, relationships are spread out among a relatively large number of competitors in both Europe and North America. Investors select brokers for futures trades largely on the basis of pricing/execution, clearing relationships and electronic capabilities.
In North America, nearly 50% of institutions active in equity futures cite Goldman Sachs as an important trading relationship, followed by Bank of America Merrill Lynch and Morgan Stanley at approximately 40%, J.P. Morgan at 32% and Barclays at 27%.
Europe: Between 46% and 48% of European institutions cite important trading relationships with Morgan Stanley and J.P. Morgan, respectively. Following closely is Goldman Sachs (44%) and Deutsche Bank (43%).
Institutions in North America and Europe look for the best pricing when picking an ETF broker, Greenwich said. In addition, offering effective electronic trading platform for ETFs is critical in both North America and Europe as buy-side now reports executing approximately 40-50% of volume via electronic platforms.
In North America, Morgan Stanley is tops grabbing 60% of the market.
In Europe, Deutsche Bank is Europe’s top broker of ETFs, claiming important trading relationships with 53% of institutions active in the product.