We have been getting a lot of questions around the consolidation that is occurring within the UK broking industry.
Late last year, Northland Capital Partners announced a merger with SP Angel. Shortly thereafter, (this year) we have seen the tie up of privately owned Stockdale Securities with publicly listed Shore Capital (AIM: SGR) to create arguably the UK’s 4th largest mid cap broker. The very next week we saw an announcement from Cannacord that they would be implimenting a program of redundancies costing £9mln this quarter; primarily within their Capital Markets division (aka. broking).
Where consolidation has not occurred, some brokers have seen their profits decline markedly. Cenkos Securities (AIM: CNKS) for example saw profits fall by 90% in October 2018 resulting in the CEO stepping down.
We’ve already seen margins being squeezed in the UK small and mid cap brokers since January of 2018 when the MiFiD II regulations came into force. This is further evidence that the World is getting tougher for the brokers. Secondary trading is already a marginal activity for many with commissions having been reduced from circa 30 basis points down to between 10 and 15 for the smaller stocks. Larger companies are traded for a lot less meaning that the incentive to continue to facilitate this trade is diminished. Publicly listed companies are therefore seeing an increasing share of their traded share capital done by a declining broker pool. This begs the question, is this a blessing or a curse?
There is undoubtedly going to be more change within the global small cap broking landscape in the coming months so things could look very different once all the changes have been implemented. Clearly, this is also going to affect the companies that rely on these brokers for trading, research and advice.