[ M A R K E T
Bragg says that having a sponsor-
ship model would make sense for
dealers enabling them to stay rele-
vant with their client, earn fees and
potentially have follow on trans-
actions related to the sponsored
one. The agency model is, however,
used only where sell-siders feel
they can spare the effort—in other
words with smaller buy-siders or
on small ticket products. It be-
comes a more emotive issue when
dealing with big wallet products
like interest rate swaps.
“They are sensitive with this,”
says the anonymous head of an
IDB. “As the market broadens bid/
offer spreads get tightened and for
every fraction the spread narrows
there is an impact on their P&L.”
And the sensitivities are not all on
the sell-side. Despite the obvious
liquidity benefits, going directly
to IDBs could muddy the relation-
ships buy-siders have with their
dealers. Of course, not all IDBs
want to veer off their current busi-
ness model. Unlike TP ICAP, BGC
GFI says it remains firmly focused
on the sell-side.
“As an IDB we cater to the banks,”
says a spokesperson for BGC Part-
ners. “The last thing we want to do
is infringe on their business. We
are not pushing for the buy-side
but have products that warrant
opening up to the community to
foster liquidity.”
Tradition, meanwhile, the third
of the triumvirate, says that while
the market has opened up it has
not suddenly moved from an IDB
to all-to-all market provider.
“Liquidity provision has become
significantly more difficult for
banks in recent times due to
macroeconomic and regulatory
A N A LY S I S
|
I N T E R D E A L E R
pressures,” says Dan Marcus, global
head of strategy and business
development at Tradition. “Our
strategy is fuelled by innovation
and designed to provide the market
with efficient execution solutions.
In many instances, this includes
providing non-banks with interme-
diary services.”
Tradition has, however, been
looking at innovations to make it-
self more appealing to the buy-side.
Last April it launched Elixium, an
open-to-all platform for collateral
and secured deposits trading. Its
very first transaction in October
involved the buy-side when CME
Clearing Europe, through Citi-
bank as cash management agent,
conducted a trade with Insight
Investment executing on behalf of
a UK pension fund. Along with that
it announced a deal with Pirum in
November to bring more straight-
through processing (STP) to its
platforms to help more buy-siders
join the fray. It has also been ramp-
ing up its data service in a deal
with NEX Data to provide better
market knowledge for buy-siders
involved on its platform.
“If interdealer brokers don’t in-
novate and keep up with the times
then we will die,” admits Marcus.
“We are continuously looking for
new opportunities to develop new
solutions that meet our custom-
ers’ requirements and address key
market issues.”
The push-pull between both sides
is likely to play out in interesting
ways over the next few years. Can
dealers afford to relinquish their
hold on IDBs? And can IDBs really
afford to ignore the new liquidity
power-brokers out there?
“From our perspective we need
B R O K E R S ]
to see where is liquidity coming
from in the future, where is the
value?” says the anonymous IDB
participant. “In the future less and
less is coming from banks. We will
see in the future Citadel providing
pricing and they can add value to
the community. If the big banks
don’t like them we have to make a
commercial decision.”
It is a question of adapt or die.
“If interdealer
brokers don’t
innovate and keep
up with the times
then we will die.”
DAN MARCUS,
GLOBAL HEAD
OF STRATEGY
AND BUSINESS
DEVELOPMENT,
TRADITION.
Issue 51
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