LOS ANGELES -- Institutional exchange-listed stock trades for the 12 months ended March 31 by the 728 brokers in the Plexus Broker Universe totaled $1.4 trillion, or about 20% of trading for the year, up slightly from the $1.36 trillion in calendar 1999.
For Nasdaq-listed shares, institutional trading accounted for $559 billion for the 432 brokers that traded in Nasdaq-listed shares, up 31% from $428 billion in calendar 1999.
The jump in Nasdaq trading stems from a combination of an increase in the number of money manager subscribers reporting to the Plexus universe and the growth in assets flowing into the small-capitalization stock universe during the past 12 months, said Mike Keady, managing director at Plexus Group Inc., Los Angeles-based transaction process tracking and research firm.
"Activity in the small-cap universe has grown over the period. A lot more institutions are included and more money has been flowing into the small-cap area from mutual fund investors and pension funds," Mr. Keady said.
Commissions for institutional stock trades averaged 4.7 cents per share for the year ended March 31, essentially unchanged from 4.8 cents from the previous period. Institutional commission costs seem to have leveled off at near the 5-cent level for the past few reporting periods.
Plexus officials emphasized that commission costs are but a small portion of the overall trading costs, and best execution does not necessarily equate to low commission costs.
"Commissions haven't declined significantly" over the past several reporting periods, said David Hall, managing director at Plexus, who added that simply emphasizing cutting commission costs is often "short-sighted" because low commissions sometimes mean overall trade execution may suffer through missed trades and opportunity costs.
"We believe that if your broker is doing a good job, you should reward them," Mr. Hall said. "If they handle difficult trades well, they should be compensated for that. If you manage down the commission costs, what can happen is you might go to a dealer who may do the trade cheaper but you may end up with higher overall transaction costs."
Mr. Keady said market impact figures often mistakenly are substituted for total trading costs when all elements associated with trading should be considered, including timing and opportunity costs, when evaluating the real cost of trading.
For example, commissions and market impact combined amounted to about 14 cents of total transaction costs while delays and missed trades cost a combined 31 cents on average during this period.
In calculating best execution practices by brokers, Plexus evaluates the tendency by each broker to add value to a trade. The value-added information given in the Plexus Broker Universe is the average amount 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 median value added for exchange-listed institutional trades was -2 basis points and for Nasdaq-listed trades was 4 basis points.
Mr. Hall said the value added figures should center around zero, and the negative value added figure for exchange listed trading "isn't significant."