LOS ANGELES -- In the third quarter, NYSE-listed trading for the 783 brokers in the Plexus Broker Universe totaled $1.3 trillion, or 25% of the trading for the year on a dollar-weighted average basis. Trading totaled $392 billion, or 17% of the trades for the year, for the 411 brokers in the Plexus Broker Universe that traded in Nasdaq-listed shares.
Brokers added a median value of zero basis points to NYSE trades, while brokerages added six basis points of value on Nasdaq trades, said David Hall, managing director of Plexus Group Inc., Los Angeles.
Plexus, known for its trading execution data, is providing quarterly brokerage information to Pensions & Investments.
The statistics were gathered from 85 investment managers that also are clients of the transaction consulting firm in the Plexus Broker Universe. The data, which the firm is making public for the first time, is as of Sept. 30.
On a rolling four-quarter basis, brokers were ranked on the number of trades processed and the difficulty of those trades, broken out by New York Stock Exchange- and Nasdaq-listed stocks. The charts also list, in parentheses, the brokers' ranking for the previous quarter.
Rankings also were broken out by stock market capitalization, including listings of the brokers handling the most illiquid trades.
According to Plexus, all of the data are filtered to include only brokers in the areas where at least 1% of their trading occurs.
Commissions per share averaged 4.7 cents in the third quarter. Calculations were made using a dollar-weighted average, which is the sum of all commissions paid, divided by the traded value, divided by the number of shares.
During the past two years, average brokerage commissions have peaked; and since the beginning of last year, Plexus has noticed a decline in price, Mr. Hall said. He expects them to be even lower this year.
In calculating best execution practices by brokers, Plexus looks at the tendency by each one to add value to a particular trade. The value-added figure given in the Plexus Broker Universe is the average amount -- listed in basis points -- by which a broker exceeds the Plexus benchmark, which is the average cost of a trade for all brokers in the database.
The leader in best execution for the quarter ended Sept. 30, for both exchange-listed and Nasdaq-listed stocks, was J.P. Morgan Securities Inc., New York.
Rounding off the best execution list for exchange-listed stocks are: Banc of America Securities New York; Donaldson Lufkin & Jenrette Securities Corp., New York; Morgan Stanley Dean Witter & Co., New York; and Bear Stearns & Co. New York.
On the Nasdaq exchange, Deutsche Banc Alex. Brown, New York, finished second, followed by: Instinet Corp., New York; Morgan Stanley Dean Witter; and Salomon Smith Barney Inc., New York. Instinet, an electronic communications network, was "a surprise to rank so highly overall and in best execution," said Mr. Hall, adding that ECNs are viewed by those in the industry as the best way to trade anonymously. Overall, Instinet was the third most-used broker for Nasdaq-listed trades.
The brokers used most often in NYSE trading were Merrill Lynch & Co., New York, with 7.47% of trades; Salomon Smith Barney, with 5.73%; Goldman Sachs & Co., New York, with 5.4%; Morgan Stanley Dean Witter, with 5.36%; and electronic trading network ITG/POSIT, with 4.91%.
Leading the way in Nasdaq trading were Morgan Stanley Dean Witter, with 8.72% of trades; Goldman Sachs, with 8.37%; Merrill Lynch, with 7.93%; and Salomon Smith Barney, with 7.78%.
Plexus also ranks firms by the difficulty of trades, based on the trading factors, such as the market environment and size of the trade. Mr. Hall said large block trades of stocks that are moving quickly are often the most difficult. Because the most difficult trades will have the most negative value-added numbers, compared with the overall Plexus benchmark, the company assigns them a lower benchmark in determining best execution, resulting in higher value-added numbers for these brokers.
The firms handling the most difficult trades on the NYSE in the third quarter were: Goldman Sachs, with 8.74% of trades; Morgan Stanley Dean Witter, with 7.93%; Salomon Smith Barney, with 7.87%; Merrill Lynch, with 7%; and Deutsche Banc Alex. Brown, with 5.96%.
Brokerages with best execution for difficult NYSE-listed stock trades were Bridge Trading International, New York, with a value-added figure of 200 basis points; Morgan Stanley Dean Witter, 162 basis points; Bear Stearns, 152 basis points; Credit Suisse First Boston, 124 basis points; and Goldman Sachs, 118 basis points.
For Nasdaq-listed stocks, the firms handling the most difficult trades were: Morgan Stanley Dean Witter, with 12.3% of trades; Goldman Sachs, with 9.63%; Merrill Lynch, with 7.56%; Salomon Smith Barney, with 7.04%; and Instinet, with 6.89%.
J.P. Morgan led the way for best execution in the Nasdaq exchange, with 213 basis points value added. Salomon Smith Barney placed second, with 133 basis points, followed by Morgan Stanley Dean Witter, 127 basis points; Banc of America Securities, 125 basis points; and Instinet, 124 basis points.
Some of the same names show up in the broker rankings for market capitalization.
On the NYSE, Merrill Lynch was the most-used broker for large-cap equity trades; Donaldson Lufkin & Jenrette had the best execution; and Goldman Sachs handled the most illiquid stocks. Illiquidity is pinpointed by the finding the trades that are the largest portion of daily average volume during the quarter.
For NYSE midcap stocks, Merrill Lynch was the most-used broker; Warburg Dillon Read LLC, New York, had best execution; and Credit Suisse First Boston handled the most illiquid trades.
For NYSE small-cap stocks, ITG/POSIT was the most-used broker, while Goldman Sachs had the best execution and J.P. Morgan had the most illiquid trades.
In Nasdaq large-cap trading, Morgan Stanley was the most used. Banc of America had the best execution, and Lehman Brothers, New York, had the most illiquid trades.
For Nasdaq midcap stocks, Instinet was the most-used broker; Deutsche Banc Alex. Brown had the best execution; and Salomon Smith Barney had the most illiquid trades.
For Nasdaq small-cap stocks, Instinet was the most used and had the best execution, while Morgan Stanley had the most illiquid trades.