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TABB: European equity markets being recast by regulatory-driven shockwaves

First Published 28th April 2016

TABB Group Research study details how capital constraints, MiFID II rules surrounding research unbundling, and new dark trading rules are transforming European equity markets.

New York and London - The European equities markets have been held hostage to pending MiFID II regulation, but are quickly starting to transform, despite the absence of clarity on the impending mandate, a TABB Group Research study concludes.

The study found that a powerful combination of regulatory threat, economics and technical innovation is redefining the core of the European equities brokerage value proposition, including how institutional investors obtain research, capital and trading support. Although the changes are unfolding in incremental steps, institutional investors are already changing the way they are managing their businesses. TABB Group expects the changes will have a dramatic impact on European equities markets.

Compiling its annual review and forward look on the challenges facing European equity trading and market structure, TABB Group has released its "European Equity Trading 2016: The Liquidity (R)evolution" report, highlighting the findings from interviews with head traders at European institutional investors regarding how they are adjusting to this massive equity market transformation.

"The continued delay in the implementation of MiFID II is frustrating for industry participants, but it is not the only challenge facing European equity trading," says TABB's Rebecca Healey. "Broader economic and technical fundamentals continue to take their toll on investment banks by pushing the industry toward wholesale change. Exiting of business strategies, declining return on equity, and reduction of sell-side capital are creating a vacuum and opening up a larger debate over how the industry will evolve."

According to TABB, there will be broad-reaching effects, including: how research is consumed and produced, how clients are serviced, which brokers are being used, how capital is being deployed, which algorithms are being used, and which firms will win and lose overall. Some of the key findings from TABB's study include:

While European equity commissions recovered in 2015, expectations for an increase in commissions in 2016 are low. Only 13% of large asset managers anticipate their commission wallet will grow.

The fight for wallet share is intensifying with the top five brokers accounting for an average of 56% of total commissions paid. While commissions to the top five are concentrating, where firms are positioned within the top five has become critical as there is a 19% commission differential between the top and the fifth broker and a 12% commission swing between the top two.

Fundamental shifts in brokerage relationships are underway with just 25% of buy-side firms still using bundled commissions to pay for research through the traditional manner.

TABB explains that European asset managers face a daunting surge in complexity and accountability while simultaneously losing their traditional methods of execution. Greater unbundling, loss of client facilitation of order flow, and forthcoming regulation will inevitably force a rethink of current methods of accessing liquidity and for many, will sever the cord to traditional brokerage relationships.

For more information or to purchase the reports, contact