The US cash equities market has been losing the battle for order flow for three years in a row, forcing institutional equity brokers in 2011 to see their third annual decline in commission. According to new research from TABB Group, execution-only commissions will fall more precipitously in 2012 as the buy side continues to squeeze every dollar out of their constrained wallets.

Amidst this climate, Adam Sussman, a TABB partner, director of research and author of the new report, “US Institutional Equities: State of the Industry 2012,” expects single-stock volume to rebound during the fourth quarter of 2012.

“The state of the US financial industry is improving with the US equities market viewed more as a savior and less as an albatross, as stock prices stabilize, volatility subsides and correlations unwind,” he says. “But more challenges are ahead as we face the full impact of years of market evolution in the current low-volume trading environment.”

The new report, which Sussman summarizes in a video interview on TabbFORUM, the online capital markets community, contains 21 charts on US equities, including: fund flows; ratio of single-stock-to-exchange-traded fund (ETF) volume; correlations; volatility; mergers and acquisitions within capital markets; equity exchange-traded notional turnover; market share among exchange groups; institutional equity brokerage commissions; and the size of the execution-only wallet.

In January 2012, TABB Group also queried 10,500 members of TabbFORUM for direct input on a number of issues, including estimates for the average daily volume for US equities, which they forecast at 8 billion, a slight increase over 2011’s 7.8 billion, well above 2010’s 6.8 billion. “Enabled by automation and fueled by fear, volumes were in a bit of a bubble from 2008 to 2010 but TABB now believes that US equity volumes will modestly decline during 2012 and begin to pick up steam in late 2012 and into 2013,” says Sussman, who also wrote TABB’s October 2011 report, “Global Equity Trends 2011: Volumes, Fund Flows and Related Miscellany.”

“Other economies are growing faster; other markets are catching up in terms of reducing the overall costs of trading; US regulations aren’t yet optimized for IPOs; and we fear that major players within the US equity markets will continue to spend more time battling internecine wars, attracting negative attention, rather than focusing on raising the tide for everyone,” Sussman warns. “However, TABB believes that while the state of the industry is on the path to recovery, the strength of that recovery over the next several years depends on how well everyone works together today towards improving the industry.”

A sampling of the 21 charts includes: 

• Fund flows of US equities, domestic and foreign investors
• Percentage of volume by single stock versus ETFs
• Capital markets M&A deals by target-acquisition type
• US medium-horizon model cumulative-style factor returns
• Implied correlation, VIX and S&P500
• Percentage of equity notional by instrument type
• Total cash equity and equity-linked ETD notional volume in 2011
• Equity volume by major exchange groups, internalization, dark pools and regionals
• Dark market share by type of pool
• Number of single-stock circuit breakers by trigger event
• US mutual fund AUM, monthly estimates
• Global hedge fund AUM, monthly estimates
• Monthly equity volume as percentage of average daily volume
• Long-only commission pie change, 2010-2011
• US institutional equity brokerage commissions
• US execution-only commissions
• Percentage of buy-side volume traded as a block
• Average shares per trade

The 22-page report is available for download by TABB Group Research Equity Alliance clients and pre-qualified media at https://www.tabbgroup.com/Login.aspx. For an executive summary or to purchase the report, visit http://www.tabbgroup.com or write to info@tabbgroup.com.