The U.S. equities market has been losing the order flow battle for three straight years and will continue to fall until 4th quarter 2012, a Tabb Group Research Report says.

Concurrently institutional equity brokers saw their third annual decline in commissions. Moreover, execution-only commissions will slide more precipitously in 2012 as the buy side continues to squeeze every dollar out of their constrained wallets.

Even so, Adam Sussman, a Tabb partner, director of research and author of the new report, “US Institutional Equities: State of the Industry 2012,” expects single-stock volume to rebound during the fourth quarter of 2012.

“The state of the US financial industry is improving with the US equities market viewed more as a savior and less as an albatross, as stock prices stabilize, volatility subsides and correlations unwind,” he says. “But more challenges are ahead as we face the full impact of years of market evolution in the current low-volume trading environment.”

In January 2012, Tabb Group also queried 10,500 members of TabbFORUM for direct input on a number of issues, including estimates for the average daily volume for US equities, which they forecast at 8 billion, a slight increase over 2011’s 7.8 billion, well above 2010’s 6.8 billion.

“Enabled by automation and fueled by fear, volumes were in a bit of a bubble from 2008 to 2010 but Tabb now believes that US equity volumes will modestly decline during 2012 and begin to pick up steam in late 2012 and into 2013,” says Sussman.

“Other economies are growing faster; other markets are catching up in terms of reducing the overall costs of trading; US regulations aren’t yet optimized for IPOs; and we fear that major players within the US equity markets will continue to spend more time battling internecine wars, attracting negative attention, rather than focusing on raising the tide for everyone,” Sussman warns. “However, Tabb believes that while the state of the industry is on the path to recovery, the strength of that recovery over the next several years depends on how well everyone works together today towards improving the industry.”

Laton McCartney writes for Securities Technology Monitor.