US and European Buy-Side Equity Trading: An Aggregate View

Executive Summary
Depleted buy-side commission wallets, order allocation, CSA and algo trends, and commissions paid to top brokers easily point to similarities between the US and European markets. The evolution of today’s market structure, and with it trading behavior, used to largely follow the jet stream west to east, but wallets and regulation are changing the current.

There is much that is similar. Demands from the buy-side for greater transparency into algorithmic environments, a voice in the creation of new coverage models, natural block trading products and help with markets that are hard to navigate, all find common ground. But the intensity of opinion and cause and effect has a very geographical feel to it. 

The allocation of order flow across high- and low-touch channels in the US is reaching equilibrium but Europe is on a different path towards more electronic trading. Lower volumes have hit both continents hard, but the combination of a European wallet that plummeted 29% in 2012 and the opening door to CSAs will cause those who trade in Europe to choose brokers and products with a different eye.

Most importantly, equity market structure change is on the outer ring of the SEC’s radar but is in the bull’s eye of regulators and politicians in Europe and the eventual outcome will cause shifts the liquidity formation and how and what the buy side trades.

Throughout the course of 2012, TABB Group conducted 177 in-person interviews with US and European asset managers and hedge funds about equity trading in the US and major European markets representing firms with $33.3 trillion of global asset under management.  

This study offers an aggregated view of the data, trends and outlook and highlights variations due to market traded, type of firm, geography or size. Topics include: commission wallets, order flow allocation, brokers, algorithms, coverage, CSA adoption and views on regulatory issues.

Individual results were published in the following three studies:

• US Hedge Fund Equity Trading 2012: Disparate and Desperate
• US Institutional Equity Trading 2012/13: The Paradox of a New Paradigm
• European Equity Trading 2012/13: Changing the Rules of Engagement.