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Institutional equity commissions down 40% from 2009, Greenwich finds

Recent stability shows era of decline might be over

Total U.S. institutional equity commissions have fallen 40% from the first quarter of 2009 to March 31 of this year, the result of less stock turnover after the financial crisis, according to a Greenwich Associates report released Thursday.

Total U.S. institutional equity commissions were $8.4 billion as of March 31, vs. $13.9 billion as of March 31, 2009, according to the report, "Brokers Adapt to Shrinking Equity Commissions." The total comprises research/advisory sales and corporate access commissions, which fell 38% to $5 billion in the same time span, and sales trading and agency execution commissions, which were down 45% to $3.4 billion.

Since 2009, higher stock returns, lower volatility and a shift among institutional investors to passive equity management from active all led to reduced turnover, causing commissions to decline, Richard Johnson, vice president, market structure and technology at Greenwich, said in the report.

However, institutional equity commission rates have stabilized, the report said. High-touch bundled equity trade commission rates averaged 3.8 cents per share at the end of 2016, vs. 4 cents in 2009 and a low of 3.5 cents in 2013; and electronic and algorithmic trading rates were 0.9 cents per share at the end of last year vs. 1.4 cents in 2009 and 0.9 cents in 2012 and 2014.

"Equity commissions had been on a steady decline ever since the abolition of fixed commissions in 1975, but that trend seems to be over," Mr. Johnson wrote in the report. "This new regime reflects the fact that there is simply no more room to drop."

Looking over the past decade, the report found bulge-bracket firms — large investment banks — saw their share of institutional brokerage business decline since 2007, to 59.5% of all trades as of March 31 from 77.9% 10 years earlier. Midsize and regional brokers' share increased to 29.7% from 11.1%. Execution-only venues and automated trading systems remained relatively flat over the 10 years, to 10.8% in 2017 from 10.3%.