LONDON — Trading commissions in the U.K. are edging higher as leading international investment banks UBS, Lehman Brothers, Merrill Lynch and HSBC have withdrawn from commission recapture programs.
The increase is despite the guidelines introduced last year by the Financial Services Authority requiring greater disclosure by money managers of research and execution costs within trading commissions in the U.K.
Commission management specialists said recapture activity has been falling in the U.K., but they had expected commission costs to fall as well now that money managers are required to report execution and research costs to clients.
Commissions might only be a small part of overall trading costs, but every basis point counts when pension plans are searching for alpha, according to David Morgan, chief executive of Coal Pension Trustee Services, Sheffield, England, which is responsible for £24 billion ($47.2 billion) in pension assets for Britain's coal industry.
At the end of June, commission costs in the U.K. averaged 14 basis points, compared with 13 basis points a year earlier, and 12 basis points at the end of June 2004, according to recent data from Plexus Plan Sponsor Group Inc., Bethesda, Md. Total execution costs were 71 basis points June 30, compared with 44 basis points at the end of June 2005.
The data include both full-service and execution-only trades and all equity classes traded in the U.K. for Plexus clients, said Steve Glass, manager at Plexus.