European Equity Trading Volumes to Grow

Terry Flanagan

Brian Gallagher, head of electronic trading in Europe at Morgan Stanley, is expecting only incremental growth in European equity trading volumes this year.

Gallagher told Markets Media: “Equity trading volumes are picking up but are still 30% to 40% lower than in 2006/2007. 2013 was better than 2012 and 2014 will be better than 2103 but I am only expecting incremental growth of 5% to 10%.”

Brian Gallagher, Morgan Stanley

Brian Gallagher, Morgan Stanley

European equity turnover was €7,660bn in 2013, an 11.5% increase from 2012, according to data provider Markit MSA.

Morgan Stanley was last year’s top contributing broker with €1,191bn of reported volume, up from €905bn in 2012 according to the Markit MSA survey.

Markit said: “This large increase in flow saw the firms’ market share of European trading volume rise to 16%, up from 13.2% in 2012.”

Morgan Stanley was top in all five large cap European indexes with the exception of the Spanish IBEX, and was also number one in midcap stocks in the UK’s FTSE 250 and Germany’s MDAX index according to the Markit survey.

“Our success has come from consistent coverage of accounts in the past three or four years across cash equities, electronic and portfolio trading,” added Gallagher. “We have also made a continued investment in technology and spent an inordinate amount of time and effort in reducing latency and making sure we have the most robust connectivity at each of the exchanges that we connect to.”

Gallagher said that in Europe the bank has taken a more consultative approach with clients so that they understand which venues the firms chooses to use. “We will only connect to new venues that provide a new or better type of liquidity,” he added.

According to Morgan Stanley’s full-year results in January, equities sales and trading revenues were $6.5bn in 2013, 35% up from $4.8bn in 2012.

Colm Kelleher, president of Morgan Stanley Institutional Securities said at the Goldman Sachs Financial Services Conference last December: “If you go back a few years ago, we always had a top tier equity business but it was beginning to get a little bit tired.”

Morgan Stanley has grown its equities market share through a nine box strategy with three products – prime brokerage, cash and securities – in three regions according to Kelleher.

Kelleher said he expects growth in Europe to remain subdued. “In Europe they got increased market share and focused on it appropriately and resized the business,” he added. “This is all against the backdrop of using a very strong research product to support our business as well.”

Gallagher said a continued focus in Morgan Stanley’s electronic business is customisation. “Five years ago clients used a standard toolkit but now want more bespoke solutions, he said. “We also want to provide more analysis looking not just how algorithms perform overall, but how the individual slice performs and whether we are trading in the right places.”

A report on European equity trading from consultancy Tabb Group this week found that European asset managers are allocating a higher portion to electronic trading relative to high touch research commissions. The report said that in 2013 average daily equity market volume rose 16% year on year but commissions paid to brokerages climbed just 9%.

Tabb Group surveyed 58 head traders at equity fund managers across Europe, the UK and US with €14.6 trillion in assets under managers during the fourth quarter of last year. Respondents expected a 25% fall in allocations to sales trading this year, but a 52% increase to direct market access or algorithmic trading.

The survey said: “Long-only asset managers in particular warn of a further decline in commissions payable in 2014 as the industry becomes increasingly low touch.”

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