Decline in trading volume levels off a bit for 2003

LOS ANGELES — Listed trading volumes continued to erode in 2003 but declines were not as dramatic as the year before, according to data from Plexus Group Inc., Los Angeles.

Institutional trade value in exchange-listed stocks fell 11.2% in the 12 months ended Dec. 31, to $1.67 trillion, from $1.88 trillion at the end of 2002. In 2002, exchange-listed trading value declined 17%.

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The value of institutional Nasdaq-listed trading slipped again last year, but dropped only 2.14% compared with a 38% drop in 2002. Trade value at the end of last year totaled $588 billion, down from $601 billion at the end of 2002.

"It's a reflection of the market itself," said David Hall, a managing director at Plexus, noting that the stock market, while having risen significantly in 2003, remains well off its 2000 peaks. "Institutions have really pulled back, and average daily volumes have come down."

The stock market recovery has also played a role in the leveling off of commission rates, which held steady at 4.1 cents per share for exchange-listed trading and 3.7 cents a share for Nasdaq-listed stocks.

"The decline in commissions appears to have abated and part of that has to do with the rise in asset values," Mr. Hall said. "People are paying a lower percentage of their assets" in commissions.

He added that another factor might be an end to the advent of new trading venues and a consolidation among electronic trading systems. For example, he noted that Instinet Group LLC, New York, acquired Island ECN, and Nasdaq Stock Market Inc. recently agreed to acquire Brut ECN.

"Some of the consolidation in these new transaction venues might mean a little less price pressure," Mr. Hall said.

The 826 brokers in the Plexus broker universe who handle exchange trades added a median value of zero, down from one basis point at the end of 2002. The median value added to trades by the 639 Nasdaq brokers in the Plexus universe was five basis points last year, up from three basis points the year before.

Value-added data is drawn from broker experience in the Plexus universe of 1,465 brokers and the average broker usually adds zero or near zero, Mr. Hall said.

The number of brokers in the Plexus universe was down from 1,481 at the end of 2002. Mr. Hall said that trend reflects a continued move by institutional investors to concentrate trading activity among fewer suppliers.

While traditional brokers continued to handle the lion's share of activity both in exchange-listed and Nasdaq-listed trading, ECNs and alternative trading systems continued to make inroads, particularly in Nasdaq-listed stocks.

In the category of best execution, Liquidnet was among the top brokers in the medium capitalization exchange-listed issues. Among Nasdaq-listed trades, Archipelago and Knight Equity Markets joined Instinet and Liquidnet among the top electronic-based brokers.

Mr. Hall explained that for Plexus, best execution is achieved when the maximum amount of value held by the investor is retained after the trade is complete.

"Before you transact, you have X dollars and you end up with Y," he said. "To us, the cost of transacting is Y minus X and best execution minimizes that difference."