Coming Soon To Institutional Sales/Trading: Discount Brokerage

Institutional Trading

Let the Pinching Begin

You knew it was coming sooner or later.  I guess it’s coming sooner.

From TheStreet.com:
Goldman Sachs (GS) and other big securities dealers made bundles of money last quarter because they faced fewer competitors, but now BlackRock(BLK) is hoping to change that. 

BlackRock, soon to be the world’s largest money manager, is working on a way to cut out the middleman on a lot of its equity trades, according to a report in the Financial Times on Saturday. Currently, it executes trades through banks like Goldman, Morgan Stanley (MS), JPMorgan Chase(JPM) or Citigroup (C). 

One of the ironies and unintended consequences of the credit crisis is that, while fewer large brokerages remain, those that stuck around are raking in easy money from the large institutions that now have limited choice when executing trades.  Unfortunately, this scarcity of choice comes with a counter-balanced problem for the brokerages…big shops like BlackRock know how easy-come this trading fee money is for Goldman et al and they certainly didn’t become the biggest money manager on earth by ignoring cost structure.

My friends on institutional trading desks on The Street would argue that they already offer volume discounts for trade executions, with the average mutual fund or hedge fund paying only pennies a share.  They would also make the case that the funds are gaining access to research and strategy calls in exchange for their order flow. 

Both of these statements are true, but losing relevance everyday. 

 Just as the arguments for higher cost structures in other industries have  been washed away by the internet tsunami (go ask retailers or content providers), so too will the arguments for premium pricing for institutional trades succumb to the inevitable erosion. 

Ten years ago or so, the discount broker revolution came to town in the form of online trading and its sights were aimed squarely at the retail brokerage firms.  Guys running trades for clients on a full service basis had to actually provide, umm…full service!  Many firms adapted by eschewing commission-based business (as trade execution became commoditized) and migrating toward the fee-based advice model that has taken over the wealth management industry.

Looks like the revolution may now lay siege to the highly-profitable institutional side, and as with retail, things will never be the same. 

BlackRock is an industry leader, and if they follow through on CEO Larry Fink‘s discontent with Wall Street’s easy money execution business, look out below for profit margins. 

Bulge Brackets…meet Creative Destruction.  You kids play nice!

Sources:

Goldman’s Giant New Rival (TheStreet.com)

Tags: , , , , , , , , ,

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. 온라인카지노 commented on Dec 28

    … [Trackback]

    […] Here you will find 3593 more Info on that Topic: thereformedbroker.com/2009/09/15/coming-soon-to-institutional-salestrading-discount-brokerage/ […]

  2. mini sex dolls xxx huge tits commented on Dec 31

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2009/09/15/coming-soon-to-institutional-salestrading-discount-brokerage/ […]

  3. Sony KDS-55A3000 manuals commented on Jan 21

    … [Trackback]

    […] Find More Info here to that Topic: thereformedbroker.com/2009/09/15/coming-soon-to-institutional-salestrading-discount-brokerage/ […]