[ 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