European Union trading fees are still +113% higher than similar fees within the US

Transcription

1 European Union trading fees are still +113% higher than similar fees within the US Despite large decreases in brokerage commission rates across Europe, all-in trading costs remain high within European Union countries. Average EU Tax/Stamp duties increased from +4.4 basis points to +.38 basis points between 2Q7 and 2Q8. Driven by high stamp duties within Ireland and the United Kingdom, all-in trading fees are one area that may have been overlooked by MiFID. All-in all-in Trading trading fees fees within EU Eu and and US us countries: Tax/Stamp Duty Duty Commission EU US MiFID Article 21 and 4 are in place to keep the downward pressure on trading costs, but these efficiencies may be overshadowed if trading fees continue their upward climb. European Union commissions are down 31% in the past 12 months to an average of basis points. These commission reductions have been driven by technological advancements and increased competition within the marketplace, two factors which MiFID rules heavily support. US and Asian equity brokerage commissions have also witnessed similar reductions. The US (All Trading) brokerage commission average decreased from +8.8 basis points to basis points between 1Q8 and 2Q8. Japan (All Trading) brokerage commission average decreased from basis points to basis points between 1Q8 and 2Q8. Most other global markets have witnessed commission reductions as the trend towards low cost equity trading is global in scope. Although, increased competition for order flow and technological advancements are at the forefront of trading cost reductions, the advancement and broad global acceptance of trading cost analysis tools have certainly played a large role in driving commissions to these low levels.

2 EU Eu Brokerage Commission commission Post post MiFID mifid Basis Points Basis points 1 q8 q7 Austria Belgium Czech Denmark Finland France Germany Greece Hungary Ireland Italy Luxembourg Netherlands Poland Portugal Spain Sweden U.K. Global Average Post-trade Transparency in Europe remains a challenge Delayed trade reporting, format differences and double counting are just a few of the factors which are causing headaches for global money managers. As the introduction of MiFID is now over eight months old, many of the effects of these new policies are beginning to take shape. Under MiFID all transactions have to be reported and published to the market; however, since the concentration rule has been lifted these trades can be reported to any trade reporting facility as long as the data is easily accessible to the market. This process is encouraging more trades to be done off exchange since trades do not have to print on a primary exchange like the London Stock Exchange. Prior to the implementation of MiFID prints captured by the LSE were easily accessible on a daily basis for a reasonable cost to investors. Post MiFID, these data have been fragmented to other trade reporting venues, using multiple sets of condition codes and only provided to the market at a significant cost. Trade reporting venues use condition codes to highlight significant prices throughout the day including the Open, Close, Auction, Indicative, Test or several other price conditions to categorize trade data. In order to properly analyze trade data you need to understand the significance of each condition, complicating and increasing the cost of post trade transparency. In addition to the cost of capturing fragmented data, block trades (1, shares or greater) can be reported up to three days after the trade occurred, which becomes useless for investors monitoring the markets on a daily basis. Although, the MiFID requirements will promote cost reductions among execution venues, measuring these cost reductions has certainly become more complex.

3 Exchange and Venue Update Reg NMS in the US and MiFID in Europe has contributed to market fragmentation, which is no more evident than examining the volume traded on the New York Stock Exchange within NYSE listed stocks. Originally trading in NYSE stocks took place on the NYSE. During 1Q7, prior to the launch of Reg NMS roughly 8% of the trading in NYSE stocks took place on the NYSE, today that number is down to 3%. On July 11 th, 28 NASDAQ OMX executed 2.66% of NYSE shares, slightly more than the 2.61% of NYSE shares which were traded on the New York Stock Exchange that day. The below charts highlight the amount of shares executed on NYSE, NASDAQ and other venues for Coke, IBM and Google on August 19, 28 two hours into the trading day: Coke ALL Trades 2,676,2 1.% Coke NYSE 1,186, % Coke NASDAQ 18, % Coke Other Venues 97, % IBM ALL Trades 1,72,699 1.% IBM NYSE 668, % IBM NASDAQ 43,8 2.68% IBM Other Venues, % Google ALL Trades 939,984 1.% Google NYSE 184, % Google NASDAQ 339, % Google Other Venues 416, % As you can see from the previous data US equity liquidity is fragmented between multiple venues and exchanges and is no longer centralized on the NYSE or within the NASDAQ trade system. Although the NYSE may be losing market share within NYSE listed stocks overall volume is still growing. Average daily volume on the New York Stock Exchange continues to break records on a regular basis. On January 23 rd of this year the New York Stock Exchange recorded its largest trading day ever with over 6 billion shares traded for the day. July 28 was the most active month for the New York Stock Exchange with over 92 billion shares traded. The below chart highlights exactly how fast NYSE trading volumes have grown over the last few years

4 Daily daily NYSE nyse Share share Volume (in (in billions) Billions of Shares Billions 1 of Shares Jul-8 NYSE Alternative execution venues are one of the biggest drivers moving trades away from the NYSE and the traditional NASDAQ trade system. BATS, BIDS, Liquidnet, Pipeline, ITG Posit, Instinet, Credit Suisse Cross Finder and Goldman Sachs Sigma X are just a few of the alternative venues which money managers are utilizing to bypass the traditional methods of trade execution. BATS Trading, which is one of the fastest growing alternative execution venues, has recently received approval from the Securities and Exchange Commission (SEC) to operate as a stock exchange. According to a Wall Street Journal article published Tuesday August 19 th, 28 BATS Trading averaged 969 million shares per day during the month of July. An enormous figure, especially considering just ten years ago this number would have been greater than the average daily share volume on the New York Stock Exchange. Project Turquoise The most highly anticipated European trading venue is almost operational. Turquoise which has a very similar financial structure to BATS seems destined for success in the European marketplace. Last Friday a select group of participants began trading on the exchange in order to test the system for a full launch in mid September. Project Turquoise is owned by a consortium of banks including: BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley, Societe Generale and UBS. Citigroup, Credit Suisse, Deutsche Bank and Morgan Stanley are also owners of BATS Trading. BATS Trading plans to enter Europe and compete with Project Turquoise prior to year end. Fixed Income Update Fixed Income trading cost analyses are gaining acceptance as Elkins/McSherry continues to see demand in the marketplace for tools which quantify Fixed Income trading costs. During 2Q8 Elkins/McSherry began utilizing additional Fixed Income data provided by Tullett Prebon and Market Axess. These data sources have been well received by Elkins/McSherry clients and have improved on their ability to accurately document and analyze exception trades. Fixed Income trading cost analyses revolve around documenting and analyzing high and low cost or exception trades. Many compliance officers see this evaluation as a strong compliance and management tool. The Elkins/McSherry Fixed Income analysis is adding value to the trading process by highlighting these trades and

5 providing Universe data for comparison purposes. According to the most recent set of Elkins/McSherry Universe data, a developed market fixed income trade can cost anywhere from +BP to +1BP. Emerging market fixed income trading costs range between +1BP to +3BP. The below chart highlights the average cost to trade various US bonds during 27. As you can see below, US Fixed Income trading costs range from +BP to +12BP. These are significant numbers considering a ten million dollar fixed income trade can cost any where from five to twelve thousand dollars. Bond Type Average. Cost (BP) Agency 6.73 Corporate 6.97 Mortgage.23 Municipal Treasury.87