The stock market is highly unpredictable. Making the right calls means one can get high amounts of money, and getting it wrong means making major losses. From the beginning of 2017, the difference of payment of research and trading commissions is expected. The new commission’s rules set to take place will be a major shakeup in the trading landscape of Europe.
Managers will have no choice but separate the payment of research from that of trading commissions. Normally, commissions have always had a big effect on the brokers who service them. The buy side is expected to be more selective of the type of research they want and what they deem worthy. As it is right now, these changes will come in at a time where active asset managers are facing major pressure from passive investing threats. Managers are today cutting their fees to compete competitively. This has meant reducing the commissions paid to brokers.
Brokers are on the other hand experiencing structural changes in that their trading volumes are low, they are facing pressure in fees, but also have better technology. Among the brokers, a lack of preparedness is being observed. The structural changes they are facing are finding them unequipped to deal with them. In fact, most of them are just waiting to see what happens
Brokers in London, for instance, are offering research, corporate broking and execution. Due to its reliance on equity capital markets, it is being viewed as cyclical. Amid a likely flood of red tape, many institutions are fearful of the impact of the controversial Markets in Financial Instruments Directive, which took shape early November 2016. Most firms have spent large sums of money to comply with the directive. The purpose of the directive is aimed at creating a regulatory regime and single market for investment services in Europe. The directive is expected to make it easy to trade shares.
Although many British companies are underprepared, the situation is even worse with the rest of the continent. An EA survey showed that at least 93 percent of institutions felt the directive would not be well implemented. Although there have been mergers and casualties after the financial crisis, there still have been various firms that have been saved by the initial public offerings. Since secondary commissions have drastically gone low, brokers are now focussing on winning primary business.
In the past years, it was possible to cover overheads with secondary commissions. Today, however, the only way out is handling deals and clients well. The junior markets are also facing major regulatory scrutiny. Following this, most organisations are already renewing corporate governance, and this could prompt another shakeup in the sector. As it gets tough and expensive, companies must get ready to handle the costs.
At the time of the Big Bang theory in 1988, the overseas ownership was already accelerating. Later in 1990’s when most European firms were in the dual listing on NASDAQ the ownership passed 20% of total. This growth acceleration slowed in 2000 but has been seen to increase in the last decade steadily.
According to the Financial Times, UK has become easier for overseas investors to participate in the share ownership. So far, the UK ownership is higher than Japan which is at 32 percent, and the US which is at 16 percent. Overseas, UK stands at 54 percent. However, Japan and the US are considered to be larger markets that are easily diluted by foreign ownership. In the coming years, managers must ensure the press gives positive reports about their firms and not negative details that could impact shareholders.
In the result fillings, firms must in 2017 concentrate their analysis on the latest reported period. It will not be necessary to cover previous results. The investor will only have to decode the latest quarter. While nearly half of the European population has direct share investments, it is not easy to invest in the share market. There must be a clear strategy. A firm must also understand the opportunities available and how to act on each. The average return yielded by shares has to be higher than the cash invested and fixed income assets. Some shares also offer tax benefits. As you look out for the oncoming changes, remember that the share market is volatile and may be influenced by factors such as government policies, the economic environment, and company financials.