INSTITUTIONAL investors have slowed their uptake of electronic trading,in part to prop up the shrinking commissions being paid to Australia's battling brokers,new research suggests.
The latest review of Australian brokers,carried out by the respected Peter Lee Associates,includes a finding that the growth in the use of electronic trading desks slowed this year.
The proportion of trades executed through electronic trading desks increased modestly to 11 per cent from 10 per cent last year.
The growth in the use of dark pools--which allow for the trade of large lines of stock off-market to avoid affecting market prices--recorded a more significant rise,jumping from 3 to 6 per cent of all trades.
Peter Lee managing director told The Australian that the pace of growth in electronic trading had eased compared with previous years.
"The reason for that is partly because some of the investors realise that they need to pay their brokers a reasonable level of commission to ensure that they continue to get the research andSandhya Chand the flow of deals and corporate access,"Ms Chand said.
"If they're not doing a lot(of trading generally)and they're using electronic trading more,then they're not really paying their brokers sufficiently.There's that sense that there needs to be a balance."
The Peter Lee research,revealed exclusively in The Australian yesterday,shows that average commissions paid to Australia's brokers continued to slide this year.
The average commission paid per institution this year was$4.8 million,down from$10.9m in 2008.Thinner trading volumes have been a major contributor to that drop.
Despite the trend in electronic trading this year,Peter Lee is tipping a significant jump in the use of electronic trading platforms next year.
The group predicts that electronic trading desks and dark pools will combine for about 25 per cent of all trades by mid-2013,compared with the combined 17 per cent in the past year.
That rise could eventually drive a change in the way brokers offered their services,Ms Chand said."I think it's inevitable that electronic trading is going to increase,"she said."It's just how that whole process is managed,and whether there needs to be a disaggregation of services,so,for example,you pay for research separately from the trading."
Peter Lee's survey shows UBS continued to rank as the preferred broker in both research and trading in the eyes of institutional investors.
Macquarie made up ground on UBS in a number of categories,and managed to rank equal first on the survey's Research Strength Index.
The Peter Lee rankings are widely regarded as the most influential of their kind,given they reflect the views of the companies behind an estimated 75 per cent of all local institutional trading in Australian equities.