Spending on UK and European Equity Research Rose More Than 3% in 2024 Amidst Market Fragmentation and Liquidity Shortages, Finds BI Survey

The study finds that a reduction in trading among traditional asset managers has led to nearly a 2% decrease in industry commissions.

Traders report increasing concern over regulatory uncertainty as they wait for the long-anticipated Europe and UK consolidated tape.

London, January 16, 2025 — A new survey from Bloomberg Intelligence (BI) shows that European buyside traders are grappling with market fragmentation and liquidity shortages in the absence of a consolidated tape, leading to declining commissions, regulatory uncertainty set to affect the entire region, and an increase in research spending.

BI’s survey of over a hundred head or senior traders trading UK and European equities, reveal that flows are moving away from national exchanges as accessible liquidity continues to worry traders. As they deal with Europe’s fragmented landscape, 57 recognized venues, 17 markets, six or more currencies, and two major approved publication arrangements.

Managers paid an average rate of 4.5 bps for execution, as their high-touch rate increased to 6.3 pbs, average low-touch declined to 2.7 bps and program trading fell to 2.6 bps. While commissions tilted toward high-touch desks, almost 60% of trading volume was executed either through direct market access and algorithms or program-trading channels. This shift occurs as European equity commissions are expected to fall by 1.8% in 2024.

While European equity commissions are set to fall in 2024, research on European equity is expected to grow to £759 million, even amidst the challenges in trading volume and market performance 3.2% higher than in 2023 but still below pre MiFID II levels. This growth is likely driven by midsize institutions where the reliance on broker research has surged by 36%. Smaller firms also contributed to this growth, with the survey identifying a 19% increase in the importance placed on broker research in 2024. With hope this may increase further by the reversal of unbundling in the UK allowing research and trading fees to be combined in the UK once again — and the EU amending listing rules in the EU journal to allow re-bundling in the EU..

Larry Tabb, Head of Market Structure Research at Bloomberg Intelligence and the lead author of the report said: “We’re witnessing a significant shift in the flow of European equity, with regulatory uncertainty across splintered markets and scarce liquidity causing traders to alter their strategy. While this might be negatively affecting commissions, it is also creating an environment where equity research is seen as especially valuable, and spending on research is growing to keep pace with it.”

The survey finds that the largest institutional investors paid an average 22.5% or a fund’s UK/European equity commission wallet to their top broker. The picture is much grimmer for brokers ranked lower, with those ranking 11 or worse having rates plummet to as low as 0.4%.

The full European Institutional Equity Trading Study is available to Bloomberg Terminal subscribers who can access the report via {BI<GO>}.

Contact
Oktavia Catsaros
Bloomberg Intelligence
ocatsaros@bloomberg.net

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