Japan brokers extend lead in research: Greenwich
Domestic brokers in Japan last year took a stronger grip on the provision of research and advisory services to equity portfolio managers and traders, and remained dominant in trading, finds Greenwich Associates.
In the research house's annual equities and equity derivatives survey in Asia*, two local brokers stood out thanks to remarkable gains in share of votes. Mizuho Securities and SMBC Nikko Securities each gained at least four percentage points in vote share in research and advisory services, although they did not come top.
The top five Japanese brokerages were Nomura Securities (13.8%), Daiwa Securities (9.6%), Mizuho Securities (8.8%), SMBC Nikko Securities (8.4%) and Mitsubishi UFJ Morgan Stanley Securities (7.5%).
Domestic brokerages' vote share gain in advisory and research was partly down to expansion of their coverage teams while their foreign counterparts retrenched, says Greenwich.
In trading, foreign firms continue to compete aggressively for flows and commission, with Morgan Stanley and UBS standing at third and fourth, each with 7.6% trading share. But the top two were Nomura Securities (10.8%), and Daiwa Securities (9%).
“Some [global firms] are helped by their larger-scale and well established electronic trading systems, which have provided them with a boost as institutions increase the share of trading business executed through electronic channels,” note Greenwich consultants John Feng, Tomio Sumiyoshi and Taeko Sumiyoshi.
Nomura’s leading position in both research and trading is driven largely by its broad coverage of domestic and foreign investors and the service quality delivered to institutional clients, says Greenwich. It also ranks top in terms of market penetration in Japanese equity futures, with 56%.
Elsewhere in the region, Greenwich surveyed 225 institutions active in Asian equities, across China, Hong Kong, India, Korea, Singapore and Taiwan. It found that each institution in Asia uses an average of 20 brokers for research.
About 65-70% of institutional brokerage commission payments are used to cover the cost of research and advisory services, and the bulk of those commissions are paid directly to brokers with whom the clients also execute trades. In other words, market share in research provision and trading are highly correlated in Asia.
That is different from the situation in the US and Europe, where buy-side institutions commonly use commission-sharing agreements (CSAs) to reward research providers separately from brokers. In Asia only about 40% of institutions surveyed use CSA.
In research and advisory on Asian equities, Bank of America-Merrill Lynch (BoA-Merrill) and CLSA were tied as the top two brokers with 8.9% of votes each, followed by Deutsche Bank (8.6%), Morgan Stanley (8.3%) and Credit Suisse (7.7%).
In Asian equities trading, BoA-Merrill (9.1%) and CLSA (9%) came first and second, followed by Credit Suisse (8.6%), Morgan Stanley (8.3%) and UBS (8.2%).
In options and volatility product coverage, Morgan Stanley was voted the top relationship broker with 68% of votes. Then came Goldman Sachs (64%), BoA-Merrill (62%), Deutsche Bank (57%) and Citi (49%).
* The survey polled 166 equity portfolio manager and 276 equity and equity derivatives traders between July and September 2013.