How healthy is the stock market fragmentation?

In Romanian capital market, the quotes are fragmented and unevenly shared between players. Thus, of all BSE brokers, the top five players hold a combined share of roughly 35%, the rest being divided to nearly 70 SSIFs. Fragmentation is natural, to a certain extent, especially for a small sized stock exchange, and the crisis will drive the gaps between large and small players to an acute danger point.

There are players holding leadership in all markets

This uneven division of market quotes between players is visible and natural in all markets.

“Fragmentation is natural, in the event of a constant weakening of trading activity. I believe the essence of this trend reflects the actual size of Romanian capital market. I can’t have 75 credible players in this kind of market. Still, the numbers hide two separate markets: brokers who execute orders to buy or sell stocks on behalf of an institution or natural person. The differentiation criteria between winners and losers are different in the two markets”, Tony Romani, investment banker at Freeman&Co told Wall-Street.

In January this year, the difference between the five brokers at BSE and the remaining 70 was bigger than in 2008, reaching a combined market share of nearly 50% of which Raiffeisen Capital & Investment was holding over 15%.

“In any market of the world, there are players who hold leadership. The distribution of market shares in the Romanian stock exchange seems very natural. Statistically speaking, we will find 80%-20% ratios in most of the cases. We will see not only that the market is normally fragmented, but also that the top five players hold relatively even market shares”, said Vlad Ionescu, partner at

At Sibiu commodities exchange, things look differently. Of 35 active commodity brokers, top 3 players swallow 70% of the overall quote, both for 2008 and for January.

“As for Sibex, although brokers abound in the market, we won’t find many focused on derivates. They have the permit for executing orders, but don’t use it very much. They don’t actively promote their services on Sibex, they don’t brief their clients on the market opportunities. Therefore, there are probably few majority players. And I mean the retail segment”, Vlad Ionescu told Wall-Street.

On the other hand, if most of the clients, whether they are natural persons or institutions, prefer to use a certain SSIF, it means they are provided with the services they need and have no actual reason to migrate, he continued.

Ovidiu Fer, analyst at Czech-based Wood&Co, says the major gap between the market share can have negative impacts.

“Manipulation opportunities emerge and commissions tend to increase,”, Fer told Wall-Street. Moreover, the analyst said the crisis would create differences between players of the capital market.
“Many players will surely receive the impact of a full-fledged crisis. The number of competitors is high, and I doubt that many would be able to justify spending in current liquidity conditions”, Fer explained.

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