Commissions from institutional trades have fallen 25% in the past three years, while trading in equities has never been more complex. This is the product of a much-touted technological arms race among the larger players, many of which have invested heavily in trading infrastructure. The end result is that medium-sized and smaller players are simply being priced out of the market. "For too long the whole street has tried to be all things to all people," says Andrew Morgan, co-head of equity trading EMEA at Deutsche Bank. "The footprint has become very diverse and it has created a very fragmented landscape. Now that we have had four to five years of volumes falling and complexity rising it has become very difficult for smaller firms."
Intense competition has led to margins and volumes falling at the same time, something that can only end badly at many firms. Investors are coming under pressure to reduce their client lists, with users of commission sharing agreements (CSAs) likely to have 10 different brokers rather than the 40-odd brokers of old. The end result is that the market will become dominated by a small number of very large players.
