The percentage of total exchange-listed stock trades was down for the 12 months ended Dec. 31, largely because of the massive increase in day-trading activity.
Institutional exchange-listed trades accounted for 20% of the trading for calendar 1999, down from 25% for the 12 months ended Sept. 30.
The apparent decline in institutional trading reflects increasing trade volume by day-traders during the period, according to David Hall, managing director of Plexus Group Inc., Los Angeles. Institutional trading actually was steady for the calender year, but was a smaller percentage of total trading because of the increased overall volume.
Institutional exchange-listed trading volume in 1999 by the 763 brokers in the Plexus Broker Universe was $1.355 trillion compared with $1.357 trillion for the 12 months ended Sept. 30. Trading totaled $428 billion for the 432 brokers that traded in Nasdaq-listed shares for all of 1999.
In 1999, commissions for institutional stock trades averaged 5 cents per share, or just 11% of the total transaction costs associated with stock trading among the brokers in the Plexus universe.
Of the four major components of stock transaction costs, commissions represent the smallest portion. Commissions are one of the two segments of trading costs once an order is sent from the money manager to the broker. The second broker-related component of transaction costs is market impact -- the price movement while the order is in the hands of the broker -- which averaged 9 cents per share in 1999.
The largest component of average block trade transaction costs were due to delays before the order is released by the money manager to the broker, 24 cents per share, and 7 cents for missed trades. Missed trades represent an opportunity cost associated with limit orders that cannot be completed because of price movements before the trade is completed.
These less visible components of trading costs are real and reduce captured performance, said Mr. Hall. Yet, the explicit costs -- commissions and market impact -- receive the most attention by money managers and plan sponsors.
Plexus, a transaction process tracking and research firm, provides quarterly brokerage and transaction data to Pensions & Investments.
Plexus evaluates execution practices by brokers by measuring the value added by each to a particular trade. According to Plexus, value added is the average amount by which a broker exceeds the Plexus benchmark average trading costs.
In evaluating brokers on trade difficulty, Plexus uses factors such as liquidity, the market environment and size of the trade.