NRI Papers
No.121 September 1 , 2007
  The Brokerage Business in the Era of Algorithmic Trading  
Takahiro TANAKA
   In the wholesale stock brokerage business (targeting large-volume trades such as those executed by asset management companies), asset management companies generally assess the quality of research services and trade execution services offered by securities firms on an integrated basis. Based on such evaluations, they decide the order share volume, that is, the amount of brokerage commissions to be paid to each securities firm.
   Currently, however, the trend of the "unbundling of commissions" (paying separate charges for trade execution services and for research services) has begun to spread worldwide. A mechanism is now being developed whereby the quality of research services and that of trade execution services are separately evaluated to enable asset managers to select an optimal combination of service providers.
   In addition, "algorithmic trading" (an automated trade execution system using computers) that requires capabilities that have not been required of securities firms in the past has emerged. These trends make it increasingly more meaningful to separately compare and select individual services provided by securities firms.
   A shift from comprehensive evaluation to individual evaluation of securities firms by asset management companies will spur securities firms to create new ideas and services, which will eventually increase the benefits realized by asset management companies.
I Sweeping Changes
II Emergence of Algorithmic Trading
III Comprehensive Assessment of Securities Firms by Asset Management Companies
IV Future Brokerage Business


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