Human Traders Squeezed in Europe as Fees Dwindle, Tabb Says

Human equity traders remain under pressure in Europe, with computers siphoning off a record share of trading commissions, according to Tabb Group LLC.

Investors spent 42 percent of their brokerage commissions in 2013 on algorithms and other forms of automated execution, up from 35 percent in 2012, according to a Tabb survey. Trades requiring more human involvement accounted for the remainder. The proportion of money managers planning to use more algorithms has risen to 55 percent from 49 percent a year ago, Tabb said.

The shift to lower-cost automated execution coincides with a drop in stock trading profits, which has spurred banks such as Barclays Plc (BARC), UniCredit SpA and Nomura Holdings Inc. to pare back their equities businesses in Europe. Fund managers are seeking to cut trading costs, helping drive the shift to automation.

“The encroachment of algorithms continues unabated,” Rebecca Healey, a London-based financial services analyst at Tabb, wrote in the report. “The idea that algorithms are just for dumb order flow has been relegated to the history books.”

Her report was based on interviews, conducted from September to November, with 58 head traders at asset management firms that oversaw 14.7 trillion euros ($20.2 trillion) in assets worldwide, according to Tabb.

The most popular brokers offering algorithmic trading were UBS AG (UBSN), Credit Suisse Group AG (CSGN), Morgan Stanley (MS) and Investment Technology Group Inc. (ITG), based upon the number of survey respondents who mentioned them. UBS had the top position in continental Europe and the U.K., Credit Suisse led in the Nordic region, and ITG was No. 1 among U.S.-based firms routing orders to Europe.

Survival Mode

“The ranks of industry leaders who have embraced technological change are swelling with an influx of the middle majority who appreciate they too need to rely on greater technology, analysis and improved trading processes in order to survive in the new environment,” Healey wrote.

Among other asset classes, 43 percent of those surveyed said they may start trading fixed income electronically in 2014, 37 percent said they might enter foreign exchange and 29 percent in derivatives, the Tabb survey showed.

The currency market is under pressure to reform amid a widening probe of alleged manipulation of trading. At least a dozen regulators are investigating allegations first reported by Bloomberg News in June that traders colluded to rig benchmarks in the $5.3 trillion-a-day currency market.

Electronic dealing, which accounted for 66 percent of all currency transactions in 2013 and 20 percent in 2001, will increase to 76 percent within five years, according to Aite Group LLC, a consulting firm that reviewed Bank for International Settlements data.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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