GLOBAL - In both their internal business management and external brokerage relationships, Asia (ex-Japan)-based institutions are insisting upon increasingly high standards.
This is a key finding of a recent study by Greenwich Associates.
“They are allocating a higher share of their commissions to the trading side, cutting costs by increasing proportions of portfolio trading, and moving to benchmark their results in a more sophisticated manner, said Greenwich Associates consultant John Feng.
“Where the average Hong Kong or Singapore-based institution was allotting 18% of its total equity commission flow to trading in 2001, this year it is allotting 31% and where larger and more active institutions allotted 14%, they are now allotting 34%.
“These trading allocations are still not quite the proportions revealed by our research in the US, but they are around the same levels as shown by our studies in Europe – a clear indication that trading practices in Asia are approaching those seen in more developed markets.”
Two additional aspects of the incremental importance of trading to Asian institutions are evident from Greenwich Associates‚ 2002 research: four out of five Asian institutional dealers were using portfolio trading in 2002, up from 64% in 2001. Also, nearly all centralised Asian dealing desks employ at least one type of trading benchmark.
Additionally, 59% of institutional investors in Japan (including 70% of the largest) are now putting caps on brokerage commissions, ie they are paying on a negotiated per-bargain rate that is generally set at a very low level.
Although this points to increasing pressure on brokerage commission rates, Greenwich Associates studies also reveal some indications that they may be reversing course.
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