Bulge-bracket investment banks have tightened their grip on the US equity market by increasing their market share of the listed and Nasdaq markets to 61%, from 55% in 2001, according to consultants Aite Group.
Although the leading IT-focused agency brokers have also done quite well in recent years, many small and mid-sized agency brokers with traditional business models have either been acquired, downsized, or left the business altogether, as they have been unable to compete against the scale and investment expenditure of the bulge-bracket firms.
A key factor behind the growing market share of the large investment banks has been the growth of algorithmic trading, a field in which the banks’ big budgets have helped them establish a lead.
| Number of clients for algorithms |
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| Source: Aite Group; banks |
In 2005, algorithmic trading accounted for about 28% of all equities trading in the US. By the end of 2006, however, algorithmic trading was expected to account for 33% of the total equity trading volume. By the end of 2010, that figure could reach 53%. Much of this growth is expected to continue to come from the sell side itself, which helps to explain why bulge-bracket firms account for over 65% of all algorithmic trading volume.