The TRADE 51 | Page 55

[ M A R K E T A N A LY S I S | I N T E R D E A L E R B R O K E R S ] The squeeze on traditional voice broking means the sector is having to carve out a new identity to survive. Sarfraz Thind asks whether this will mean IDBs opening up to the buy-side. T he inter-dealer broker (IDB) business has strug- gled in recent years. New regulations, diminished liquidity and the squeeze on the bank risk machine have all taken their toll. From a big five the market is now a big three formed of TP ICAP, BGC and Tradition. Standing still in these conditions is not an option. But the sector is taking steps to change. IDBs have transformed themselves into a network of services, expanding the traditional model to offer electronic trading, over-the-counter data, liquidity platforms, risk mitigation services and post-trade connectivity as well as their usual voice broking service. “We see ourselves now as struc- turally important in the financial markets as global operators of reg- ulated venues,” says David Perkins, managing director, electronic brok- ing, TP ICAP. “We provide clients with multiple execution services from voice broking through to pure electronic exchange-like CLOB trading.” New regulations have steered IDBs towards something more like an exchange model and indeed many IDBs are eschewing the term altogether. “Generally we are trying to stop using the term IDB,” says one head of broking at a major IDB who asked to remain anonymous. “We call it an intermediary venue operator.” The next target is to attract the buy-side. Though it has been talked about for a while, IDBs have been sensitive about reaching out to buy-siders in the past for fear of antagonising their primary dealer clients. But things are slowly changing. The gradual transfer- ral of liquidity from the sell- to the buy-side in the last few years means that this segment is more difficult to ignore than ever. “There is a big change in the li- quidity model,” says Richard John- son, vice president, market struc- ture and technology, at Greenwich Associates. “Dealers no longer hold all the cards, which naturally impacts IDBs. The business model is changing and IDBs are having to adapt to this new environment.” Last year, ICAP released a new initiative to help bring more buy- side clients onto its platform. The ICAP Sponsored Access Mod- el (iSAM) is designed to allow buy-siders to trade fixed income on ICAP and Tullet Prebon trading systems for the first time via their sponsoring sell-side partners. From Issue 51 TheTradeNews.com 55