Table of Contents

Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Market Context 2
Distribution Dynamics 2
Table of Contents 3
Table of figures 4
Table of tables 5
Market Context 6
The retail direct equity market continues to recover 6
However, equity is growing at a slower rate to the total retail asset market due to investor interest in alternative asset classes 6
Domestic retail investors account for less than 20% of the total domestic equity market flow 7
Total retail equity balances reached £435 billion in 2006, with quoted shares accounting for around 62% 8
Both capital appreciation and net inflows declined between 2005 and 2006 9
Equity performance has been boosted by the steady recovery of the FTSE 100 index from its low point in 2003 to a 5 year high in April 2006 11
Individual share ownership has fallen across the board since 2002 13
The level of direct equity ownership remains highest in the South of England 13
55-64 year olds remain the most likely individuals to maintain equity holdings 15
All age groups have decreased their equity holdings since 2004-2005, excepting the static 85+ age band 15
Males are more likely to hold equity than females by approximately 3% 16
Individual share ownership has fallen across every income band since 2004-2005 17
There remains a strong correlation between wealth and equity investment 17
Datamonitor predicts a collapse in the retail equity market around 2008 19
The UK retail equity market is predicted to see a significant downturn between 2008-2009 before recovering in 2010 19
In the UK 20
In the US 20
General 21
Key equity products include spread-bets and CFDs 21
Spread-betting 21
Spread betting offers some significant investment advantages to traditional equity 22
Contracts for Difference 23
Market Conditions are positive for derivatives 24
Regulation 24
Execution-only direct equity trading is unlikely to be significantly impaired by MiFID 24
MiFID is likely to have a positive effect on sales of CFDs 25
...However, MiFID may also increase administration costs and lose investors 25
There have been rumours of a removal of stamp duty on share transactions 26
Some regard stamp duty as unsustainable 26
...While some believe its tax revenue to be politically irreplaceable 27
Distribution Dynamics 28
Online distribution is the future of equities trading 28
Growth in online trading is linked to increased confidence in the stock market 28
Levels of growth may be unsustainable 28
Investors are more sophisticated than ever before 29
Online trading is easier and cheaper for both brokers and investors 29
Online trade pricing has a number of common features and advantages 29
Online trading has had some notable disadvantages 30
Developing the online trading industry is vital 31
Nominee accounts are the future after government legislation in 2006 31
Personal CREST accounts were growing in popularity, but have fallen behind 31
Dematerialization suggests the creation of an electronic compromise 32
Profiles of leading online providers suggest strong competition 33
Hoodless Brennan is the best-value UK online share dealer 33
The Share Centre targets a broad range of investor groups 34
Hargreaves Lansdowne offers a wide product range 35
Spread-betting and CFDs have developed into an online phenomenon in Britain 36
Education is the key 36
The customer base for spread bets has expanded 36
The UK market looks set to grow for spread bets and CFDs 37
The distribution model must develop if the market is to continue to expand 37
APPENDIX 39
Methodology 39
Further reading 39
Ask the analyst 39
Datamonitor consulting 39
Disclaimer 39
List of Tables
Table 1: Balance of retail assets held in direct equity, 2002-2006 7
Table 2: Direct investment in domestic equity markets flows, 2002-2006 8
Table 3: UK retail equity balances by cBreakdown of UK retail direct equity balancBreakdown of UK retail direct equity balances and net inflows, 2002-2006 9
Table 4: Breakdown of UK retail direct equity balances and net inflows, 2002-2006 10
Table 5: FTSE 100 historical prices 2002-2006 12
Table 6: Level of direct equity ownership among UK households, 2002-2006 14
Table 7: Age range of UK adults holding equity, 2002-2006 16
Table 8: Proportion of males/females in each age band with shares, 2005/06 17
Table 9: Proportion of households in each total weekly income bracket with shares, 2002-2006 18
Table 10: Retail Equity Market Forecast, 2007-2011 19
Table 11: A selection of leading UK online share dealers 33
List of Figures
Figure 1: The UK retail equity market has grown by over 10% since 2002 6
Figure 2: Domestic retail investment is growing at a similar pace to non-retail and foreign investment 7
Figure 3: Unquoted shares are seeing negative growth compared to strong increases in quoted share balances since 2002 8
Figure 4: Breakdown of UK retail direct equity balances and net inflows 9
Figure 5: FTSE 100 prices have risen steadily since 2003, breaking the 6,000 point barrier in April 2006 11
Figure 6: The South East saw the strongest growth in share ownership between 2005-2006 13
Figure 7: UK adults aged 55 to 64 maintain the most equity holdings in the UK 15
Figure 8: Males between 55 and 59 are the most likely group to hold equity in the UK 16
Figure 9: Households with an income of over £1,000/wk are the most likely to own equity in the UK 17
Figure 10: The retail equity market in the UK will decline by an average of 3% between 2007 and 2011 19