LOS ANGELES — Rising stock prices bolstered institutional trade values in both exchange- and Nasdaq-listed stocks last year, snapping a two-year string of declining values.
Institutional trade value in exchange-listed stocks rose 18% to $1.97 trillion in the 12 months ended Dec. 31, from $1.67 trillion at the end of 2003, according to date from Plexus Group Inc. Trade value had dropped by 11.2% in 2003 and 17% in 2002.
Nasdaq-listed institutional trade value climbed 21.4% to $714 billion in 2004 from $588 billion in 2003. It had dropped 2.1% in 2003 after plummeting 38% in 2002. It remains well off the peak reached in 2000, when the value of Nasdaq-listed trading topped $1 trillion.
"A lot of that has to do with a change in the environment last year," said Wayne Wagner, chairman of Plexus Group. "We went from nothing happening — no reason to buy or sell individual securities — to a lot more things that portfolio managers could play around with.
"That always leads to rising markets and the need for portfolio adjustments" and as a result, rising traded volumes, he said, adding that he did not realize that values had increased so sharply.
Rising trading values, however, did not translate into better profits for brokers because commission rates declined, slipping 11% to 3.7 cents a share from 4.1 cents for exchange-listed stocks and down 6% to 3.5 cents a share from 3.7 cents a share for Nasdaq-listed stocks.
Mr. Wagner said commissions are under pressure in part because money managers are backing away from some of the services built into the brokers' commission structure, such as research.
Of the 809 brokers in the Plexus Broker Universe that handle exchange-listed trades, the median value added on exchange-listed trades was -1 basis point, meaning the median cost of execution underperformed the Plexus Benchmark cost. In 2003, the median value added was zero. For Nasdaq-listed trades, the median value added was zero last year, compared with one basis point in 2003.
The average broker usually adds zero or near zero. Value-added data is drawn from broker experience in the Plexus universe of 1,469 brokers. Of those, 809 handle exchange-listed stocks and 660 handle Nasdaq-listed stocks. Some firms trade both.
The number of brokers was up slightly last year from 2003 and Mr. Wagner said he expected to see consolidation among brokers.
"I think the market is strongly overbrokered," he said. "My guess is you're going to see a lot of consolidation. There are tremendous economies of scale."
Wall Street's big brokers — Merrill Lynch & Co. Inc., Morgan Stanley, Goldman Sachs & Co., Citigroup Global Markets Inc. and Credit Suisse First Boston — continued to be the most used brokers for both exchange-listed and Nasdaq-listed stocks. But smaller firms topped the list of best execution.
For example, for exchange-listed stocks, Jefferies & Co., New York, was ranked No. 1 with a valued added of 15 basis points. Instinet Group Inc., New York, came in second, followed by Liquidnet Holdings Inc., Morgan Stanley and Citigroup.
For Nasdaq stocks, Instinet came in first for best execution, adding 16 basis points of value to those trades. Sanford C. Bernstein came in second, followed by Bloomberg Tradebook, Bear Stearns & Co. Inc. and Banc of America Securities LLC.
Electronic marketplaces continued to make inroads in several categories, with New York-based Liquidnet ranking in the top five for best execution of large-cap and medium-cap exchange-listed shares and small-cap Nasdaq-listed stocks. In addition, Liquidnet was one of the top five brokers for the most illiquid trades of medium-cap and small-cap stocks.
All-electronic Archipelago Holdings Inc., Chicago, which is being acquired by the New York Stock Exchange, was the top-ranked venue for most illiquid large-cap Nasdaq stocks.
New York-based ITG Inc.'s POSIT system for electronically crossing institutional orders ranked first as most used for small-cap exchange-listed stocks. It also landed among the top five for best execution of medium-cap exchange-listed stocks and medium-cap and small-cap Nasdaq-listed stocks.