* 55 pct of buyside surveyed plan to do more algo deals
* Share of commission wallet may hit 40 pct for first time
* Smaller, mid-sized funds to drive growth
By Simon Jessop and Francesco Canepa
LONDON, March 4 (Reuters) - Smaller asset managers and hedge funds will drive an increase in the use of computer-driven equity trading strategies in 2014 as brokerages cut back on the services they offer to less profitable clients, a study shows.
Margin pressure among brokers has forced them to focus on servicing big-paying clients at the expense of the rest, many of whom will now look to use so-called "low touch", computer-based strategies to fill the gap, a study by consultants TABB showed on Tuesday.
Fifty-five percent of the 58 funds surveyed by TABB in the second part of its annual European equity trading benchmark study said they planned to increase spend on algorithmic trading in 2014, led by asset managers who pay less than $45 million each in annual commissions, the study said.
This could see low-touch execution's share of the commission wallet reach 40 percent for the first time.
The first part of the report, dated Feb. 4, showed how the amount of commission paid to brokerages had slipped as funds routed less business through them.
"Sparse resources are forcing brokers to restrict services to only the most profitable clients. But as the brokers become more selective, liquidity is pooling in ever more exclusive clubs," the study said, referring to the way in which larger asset managers trade large-cap stocks using standardised algorithms.
This trend will force more asset managers to use technology "whether they are willing participants or not" in an effort to get deals done, and mean they rely less on so-called "high-touch" trading, where a human broker matches buyer and seller.
"While technological leaders will continue to remain at the forefront, it will be the shift to technology by the moderate majority which will deliver greatest radical change throughout the industry," the report said.
"Hold on to your seats, low touch domination is set to take off."