(Bloomberg) -- Morgan Stanley’s $13 billion deal to acquire E*Trade Financial Corp. is driven in part by the bank’s need to meet equity investors’ demands for the latest technology and digital trading tools -- and the same forces are reshaping the fixed-income market.
A report released Thursday by Greenwich Associates found an appetite for “new and better digital products and tools” among fixed-income investors is fueling competition at banks. Kevin McPartland, head of market structure and technology research at Greenwich, said the elimination of trading commissions by many firms including Charles Schwab Corp. has freed investors to choose a brokerage based on services alone.
“A lot of it is based on the tools you provide to the end-user, and I’m not sure the institutional market is much different any more,” he said in an interview. “Compute power is effectively limitless at this point.”
In earlier research, Greenwich asked investors how they choose a top-tier bank, and 18% of respondents said technology services like execution algorithms and analytics were a factor. Breakthroughs in artificial intelligence, machine learning and the ability to mine huge pools of data have radically changed investing, McPartland said.
The E*Trade deal, announced Thursday, helps Morgan Stanley add clients who are less wealthy than its traditional customers, but a state-of-the-art platform for investors was another draw. Morgan Stanley Chief Executive Officer James Gorman cited E*Trade’s “innovation in technology” as a reason for the acquisition, according to a statement.
--With assistance from Sridhar Natarajan.
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