Wall Street's biggest brokerage firms continued to handle most of the trading in 2005 as trade values rose, but electronic and agency brokers that only offer trade execution grabbed an increasing share.
Institutional trade value in exchange-listed stocks rose 18.4% to $2.33 trillion in the year ended Dec. 31, 2005, from $1.97 trillion in 2004, according to data from New York-based ITG Solutions Network Inc.'s Plexus unit.
Institutional Nasdaq-listed trade value rose slightly less than 5% to $748 billion from $714 billion and remains well off the peak reached in 2000 when trade value topped $1 trillion.
"What we see is growth in the use of both ECNs and ATSes," said Mark Edwards, vice president of ITG Solutions Network in Los Angeles. "I see it both for listed stocks and for Nasdaq stocks, especially as I go down into the medium- and smaller-cap names. That's where you see the alternative brokers showing up."
Electronic communications networks and alternative trading systems provide money managers with electronic access to exchanges or other pools of liquidity where they can efficiently buy or sell stock.
Many traditional brokerage firms have created their own electronic trading methods and systems, but money managers have increasingly been using systems from brokerage firms that do not offer investment research and do not trade for their own accounts.
"Clients have gone more toward ECNs, ATSes and execution-only brokers," Mr. Edwards said, adding that while the trend was evident in both listed and Nasdaq trading, it was more pronounced on Nasdaq, which has always been a marketplace dominated by electronic trading.