[ M A R K E T
A N A LY S I S
the buy-side perspective the ad-
vantage is getting access to a whole
new pool of liquidity with minimal
administrative fuss.
“A key advantage is that these
clients can access Tullett Prebon
and ICAP liquidity pools without
having
to directly
on-board with
us,” says Perkins.
“From a sponsoring
dealer perspective,
they are able to generate
revenue via fees for this
service whilst also maintaining
a relationship with their buy-side
clients”.
The model, which is already well
accepted in the equity markets, is
initially focused on credit but with
the aim of moving to other types of
fixed income instruments in future.
There is no doubt that buy-siders
are hunting new pools of liquidity
right now and this needs to be an
option.
“Broadly speaking, buy-side flow
has consolidated around a smaller
group of liquidity providers,” says
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TheTrade
Spring 2017
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I N T E R D E A L E R
B R O K E R S ]
iSAM has been a slow burner.
Perkins says that the company has
been in talks with a number of
potential sponsoring dealers—yet
while the feedback has been posi-
tive, none are as yet live.
So why the hold up? The main
one is obvious—profit. Mindful of
their shrinking mar-
ket making revenues,
dealers have more of
“In the big picture, fewer
a vested interest than
ever to preserve the
liquidity providers
status quo. Keeping
creates anxiety for the
control over liquidity
pools unavailable
buy-side.”
to the buy-side is a
BILLY HULT, PRESIDENT, TRADEWEB.
competitive advantage
that no large dealer
wants to lose.
“While sponsored
access makes sense but dealers will
In general terms, the move is a
only give up clients under the most
further step in a trend that has
forcible of issues,” says Perrotta.
been gaining momentum over
In truth, many smaller dealers
the past few years. Two years
who have already seen their market
ago BlackRock announced that it
making businesses trimmed in the
had started trading in interdealer
venues—a move that caused ripples last few years have started to adopt
an agency model in the fixed in-
of anguish among dealers up and
come world, matching off positions
down the street but attested to
for their buy-side clients with no
the growing confidence among
warehousing of risk—which, in ef-
buy-siders to sidestep the interme-
fect, is very close to the sponsored
diaries on whom they have been so
agent model.
reliant in the past.
“Dealers understand the rationale
“The cat is out of the bag,” says
for taking a model, which is very
Anthony Perrotta, chief executive,
mature in the equity world, and
TABB Group. “Speaking to the
moving into fixed income,” says
largest 50 asset managers, 10% of
Ted Bragg, managing director of
them are very open-minded about
fixed income initiatives at TP ICAP.
talking to all registered intermedi-
“They have reservations about
aries. Everyone is of the frame of
mind that they want to get liquidity sponsorship as their potential to
make revenues may be reduced. On
where they can.”
The move to IDBs by the buy-side the flip-side they all admit that a
larger percentage of their trans-
would seem to be an inevitability.
actions are being executed in a
And yet, despite positive conver-
riskless fashion.”
sations, the reality is that ICAP’s
Billy Hult, president of Tradeweb.
“In the big picture, fewer liquidity
providers creates anxiety for the
buy-side. So the push is to provide
multiple channels of access to poten-
tially reach other sources of liquidity
to see if this helps broaden the bench
of real liquidity providers.”