US Equity Wholesaler Business Enters New Competitive Era
Some believe that the time's ripe for change among the top five wholesalers given recent changes in ownership structures, specifically KCG and now G1X, as well as order flow routing agreements, says TABB senior analyst Sayena Mostowfi, a market structure expert who wrote the report. “But there are others who believe the business has plateaued, that new players are overestimating the profit trajectory.”
The new report covers market structure changes' impact on the evolution of the retail wholesaler model from introduction of decimalization to the convergence of rules between NYSE/Amex-listed (“listed”) and Nasdaq-listed (“OTC”) stocks to emergence of single-dealer platforms and wider customer relationships. The report's seven detailed exhibits include historical wholesaler market share, July 2001-July 2013; order-routing summary covering 43 retail firms, Q2, 2013; and wholesaler consolidation timeline.
In recent years, says Mostowfi, wholesalers have also wrestled with the new economics introduced as a result of exchange competition for retail orders, made possible by the SEC's shift on what constitutes “unfair discrimination” between market participants on exchanges. At the same time, order senders have adopted more-sophisticated order-routing technology to optimize their execution quality and the value of their order flow.
“The competition for retail order flow is at an all-time high”, says Mostowfi. Given the wholesaler economics established by new regulations and competition over the last decade, TABB Group believes the stage is set to see which wholesaler business models persevere – but ultimately, the order senders will determine who wins and who loses.