'Impossibly Tough Business' - Smaller Firms Increasingly Throwing In The Towell

Wall Street’s smaller stock traders are throwing in the towel as their fees fail to recover from a three-year slump in equity volume and a shift to computer-driven transactions.

Bloomberg reports that ThinkEquity LLC, the San Francisco-based investment bank, said yesterday its stock-trading business will close. Oscar Gruss & Son Inc. halted merger-arbitrage operations on October 12th. Rodman & Renshaw LLC, which acquired brokerage Hudson Holding Corp. last year, told regulators in a September filing that it didn’t have enough capital and would stop trading.

Commissions are drying up for brokers who complete trades by phone or sell research as money managers buy and sell fewer securities and execute more transactions electronically. Average daily volume for U.S. equities has dropped 36 percent since 2009. The average fee to trade a share of stock fell 31 percent in the period, according to Investment Technology Group Inc.

'It’s an impossibly tough business', Greg Wright, chief executive officer of ThinkEquity, said yesterday in a telephone interview. 'There aren’t enough commission dollars today for the number of market participants so there will be further consolidation'.

Nomura Holdings Inc. (8604), Auriga Holdings LLC, Pritchard Capital Partners LLC, WJB Capital Group Inc., Ticonderoga Securities LLC and Kaufman Bros. LP have also fired equity traders or shut their doors this year.

With most stock trading handled by computers, the sales staff who work the phones for small securities firms generally make money by sending investment ideas to money managers. They trust the investors to reciprocate by paying for trading services or sending cash later.

Hit the link below to access the complete Bloomberg article:

Smallest Stock Traders Hardest Hit as Commissions Decline

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