CAPIS COO David Choate was recently featured in a piece originally published in Traders Magazine about the ongoing consolidation in the U.S. brokerage industry. To read the full article, click HERE. 

The broker-dealer space is undergoing significant transformation with the number of U.S. brokerage firms continuing to shrink. There were 3,378 firms registered with FINRA in 2023, a decrease of 16 firms from 2022, 229 firms from 2018 and 1,448 firms from 2017, according to the regulator’s 2023 Industry Snapshot report

David Choate, COO at CAPIS said that fixed costs continue to rise, while the overall commission pool shrinks: “This leads to one of only two growth possibilities – broker-dealers must take market share or buy market share”.

Technological advancements and regulatory demands are some of the factors driving consolidation.

Choate said that increased technology and compliance costs must be offset by either higher revenue or increased efficiency.

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“In theory, technology should be making us all more productive and efficient,” added Choate.

Unfortunately, he said, broker dealers are forced to add new technology to satisfy new regulatory requirements rather than to improve efficiency.

For example, broker dealers have added services for various reporting requirements such as CAT, CAIS, TRACE, 606, 605, and others, he said.

While most of these reporting systems have been in place for years, new requirements are consistently being added.

“The move to T+1 settlement is another industry-wide change that requires new technology, but does not necessarily increase efficiency or add revenue,” he said.

Choate thinks that consolidation will continue to impact the landscape, but independent brokerage firms will “still drive innovation as they seek to solve problems at the client level”.