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As one of Britain's biggest institutional investors, Scottish Widows Investment Partnership, the asset management arm of Lloyds TSB Group, has always done the bulk of its equity trading with big securities firms because of the liquidity and breadth of coverage they provide. New U.K. regulations that were introduced in January, mandating greater transparency in brokerage commissions, are only accentuating that approach. Scottish Widows now directs more than 80 percent of its trading to the 12 largest securities firms in Europe, up from 70 percent previously.
"We do the vast majority of our business with the big integrated houses because they see the flow," says Anthony Whalley, head of derivatives and dealing at Scottish Widows, which manages £100 billion ($189 billion) in assets. The firm still deals with as many smaller brokerage firms as ever, though, so it can tap niche markets or exploit the specialized expertise of certain brokers. "From an execution point of view, we still need to access as many pools of liquidity as possible," Whalley explains. "Therefore if there is a chance that someone out there is buying what we are selling or vice versa, we still need to talk to them."
As Scottish Widows' experience demonstrates, the clout, reach and technological strength of the big European and global securities firms continue to attract liquidity, bankers and fund managers say. At the same time, alternative trading venues such as Liquidnet, the U.S.-based electronic platform for institutional block trading, and electronic brokerages like Sweden's NeoNet Securities and New York-based Investment Technology Group are moving aggressively to win market share.
"There is a recognition that execution is a product and that it could affect performance," says Alasdair Haynes, chief executive of ITG Europe. "About 80 percent of the cost of trading comes from 20 percent of the portfolio, and it is important to identify that 20 percent. I think fund managers will be willing to pay for the value-added services such as pretrade, posttrade and real-time analytics in order to identify and trade the more illiquid and difficult stocks."
Europe also remains a patchwork of different markets. That allows niche players with a particular national strength or specialization in sectors such as small- to midcap stocks to thrive despite the intensifying competition.
| EUROPEAN EQUITY TRADING |
| We asked head traders at money management firms investing in European equities to rate brokerage firms according to the overall quality of trade execution they provide, as well as their performance on various trading attributes or techniques. Voters also rated firms for their overall sales-trading relationship, and rated trading venues for their execution capability. For more results, go to www.dailyii.com . |
| THE LEADING TRADING FIRMS | ALGORITHMIC CAPABILITY | ||
| Rank | Firm | Rank | Firm |
| 1 | Goldman Sachs International | 1 | Credit Suisse |
| ABILITY TO USE DERIVATIVES | ABILITY TO WORK AN ORDER | ||
| Rank | Firm | Rank | Firm |
| 1 | Goldman Sachs International | 1 | Credit Suisse |
| THE LEADING SALES-TRADING FIRMS | THE LEADING EXCHANGES | ||
| Rank | Firm | Rank | Firm |
| 1 | Credit Suisse | 1 | Euronext.liffe |
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