Trades concentrated with top five brokers

The dominance of a small number of broker firms executing the bulk of the country’s equity trades is being described as another example of New Zealand organisations “buying the industry back”.

Wednesday, June 8th 2016, 6:00AM

by Susan Edmunds

Paul Richardson

Data from First NZ Capital shows it has made 38% of the New Zealand equity market trades in the year-to-date.

The top five brokers in the market – First NZ, Craigs, UBS, Macquarie and Forsyth Barr, have 90% of the trades between them – a level of concentration that is unusual by international standards.

Paul Richardson, of Mint Asset Management, said there were a number of factors that allowed such dominance.

Only a handful of brokers were active as multiservice retail and wholesale operators in the market, he said.

Some had their numbers bulked up by their role allocating the passive investments of large off-shore funds. This in turn helped them to obtain access to IPOs.

The increasing cost of compliance had seen some smaller firms swallowed up by bigger players.

In New Zealand, people who wanted to make large trades had little option but to find a broker to help them do it, Richardson said, even if they were paying a higher fee than they would in some other jurisdictions.

“You can’t assume the amount of stock will be available so people are willing to work with brokers.”

Richardson said there had been a noticeable concentration in the industry over time.

A number of international players, such as Deutsche Bank, Goldman Sachs, JB Were and Credit Suisse, have left the market since the global financial crisis. UBS is the only international bank retaining a significant presence.

“It’s New Zealand brokers and fund managers buying our industry back,” he said.

James Lee, managing director and head of securities at First NZ Capital, said it was a sign of global operators opting to stick to what they were good at – and leaving markets such as New Zealand to practitioners on the ground.

Local firms could make decisions without having to refer back to global head offices.

“It would be hard for us to argue that we have the exclusivity to unique ideas in a global context but it's easy to argue that this is our home market, this is what we care about and invest for,” he said.

Lee said it was an “outcomes-based” business and if First NZ Capital was not delivering what clients wanted, it would not have been able to build such a strong market position.

Tags: equities