(March 16 – 11:45 ET) – For the fourth consecutive year, the securities industry has recorded increased operating profits due primarily to a buoyant retail sector, the Investment Dealers Association of Canada says in a report released today. Retail earnings totalled close to $4 billion, nearly one-half of total industry revenues. Brokerage revenues at retail firms increased 16% last year, compared with an 8% increase at the integrated firms.
The IDA cautions, however, that strong business volumes and stellar profit performance in the industry have masked a steady tightening in operating margins across all business lines due to increased competition in institutional and retail markets, and the commoditization of much of the securities business. The IDA believes that industry profitability will be susceptible to an eventual decline in market conditions and reduced investor participation in capital markets.
Although revenues from the retail business have steadily expanded as investors increased their participation in capital markets, margins have tightened. Retail commissions have been squeezed by the shift to online/discount trading. Commissions from online/discount trading have skyrocketed in the past year to total nearly $400 million in 1999. Commissions from online trading now account for 14% of total retail commissions, up from a 10% share the year earlier. The IDA estimates that on-line trading now accounts for approximately 40% of total retail trading.
Fixed income trading revenues held steady over the past year totalling $742 million. Principal equity trading revenues last year accounted for three-quarters of revenues from fixed income trading—a record high. Poor performance in investment banking operations in the past two years can be traced to reduced issuance in equity markets.
There was a build up in client borrowing through margin accounts last year to finance equity positions. Higher levels of margin debt are related to increased levels of equity trading, more borrowing capacity due to higher share valuations, and an increased number of margin accounts at dealers. Aggregate client debt in margin accounts at integrated firms totalled $7 billion at year-end 1999, up 37% above the year ago level. Margin debt grew at the same rate in the US securities industry over this period.
-IE Staff