EUROPE – Performance measurement company WM has joined forces with US trading cost analysis firm Elkins/McSherry to launch a global monitor for brokerage charges to pension funds...
The venture follows hard on the heels of criticism by Paul Myners in his report on institutional investing to the UK government that asset managers are passing on opaque, expensive broker commissions to their pension fund clients.
According to the new WM trading cost analysis figures the least expensive European countries to trade in are Belgium, France, Germany and the Netherlands.
Greece and Luxembourg, however, are above the worldwide average for trading costs, while in the UK, trading fees on the buy-side are high internationally, but low on the sell-side.
WM says the service is designed to give an indication of how commissions, fees and market impact costs compare to a universe of costs in different countries.
This will allow pension fund trustees to assess the level of commissions paid by their investement managers.
The analysis is taken from a universe of data for over 150 institutions, of which 77% are pension funds, 20% investment managers and 3% global brokers.
The survey shows that in countries like Austria, Denmark, Finland, Hungary, Italy, Luxembourg, Portugal, Spain and Switzerland, where fees are low, the time of the day when brokers trade for their customers accounts for about a quarter of the extra cost of share trading.
In Luxembourg, the timing, known as market impact, accounts for more than 80% of the top-up charges.
However, in the Czech Republic, Greece, Ireland and the UK, buy-side fees account for a much larger proportion of the trading cost, the analysis suggests.
“We are trying to publish a universe where pension funds and fund managers can look at their costs by broker and by country, relative to the universe. They’ll be able to look at whether their broker is over-charging them, where they’re over-charging them and they can look at this down to an individual trade,” says Helen Johnson, a performance analyst at WM in Edinburgh.
According to Johnson, market impact and broker commissions are the most significant figures in the cost analysis. Commissions are negotiable fees, which leaves the market impact as the crucial figure. The market impact is calculated by taking the average of the high, low, open and close prices of a single stock every day. This is then compared to the price a broker has made the transaction for, on behalf of the customer. The resulting figure is the customer’s loss in basis points.
“The market impact is a very good tool to see whether you’re at the bottom of your broker’s list for executing trades – and whether they are trading, on a regular basis, at the wrong time of the day for you. So, it’s a tool people are using to negotiate their broker commissions down,” says Johnson.
The average trade in the analysis is for e31.37. The worldwide average charge for a trade, within the analysis universe, is 59.39 basis points - comprising 31.1 basis points on commission, 7.27 basis points on fees and 21.03 basis points on market impact.
The analysis supplies information for over 35,000 securities on 208 exchanges in 42 countries. The Elkins/McSherry universe maintains ongoing and historical information on 800 global managers and 1,500 global brokers.