Interdealer brokers (IDBs), such as TP-ICAP and Tradeweb's Dealerweb, are expanding access to attract the buy-side, as liquidity continues to shift away from banks to a wider range of firms.
Last year ICAP, prior to the sale of its brokering business to Tullett Prebon, released a new initiative to help bring more buy-side clients onto its platform.
The ICAP Sponsored Access Model (iSAM) is designed to allow buy-siders to trade fixed income on ICAP and Tullett Prebon trading systems for the first time via their sponsoring sell-side partners.
“A key advantage is that these clients can access Tullett Prebon and ICAP liquidity pools without having to directly on-board with us,” said David Perkins, managing director, electronic broking, TP-ICAP. “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 in future.
From the buy-side perspective the advantage is getting access to a whole new pool of liquidity with minimal administrative fuss, as liquidity continues to consolidate with a smaller group of providers.
“Broadly speaking, buy-side flow has consolidated around a smaller group of liquidity providers,” said 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 potentially reach other sources of liquidity to see if this helps broaden the bench of real liquidity providers.”
Most recently, Tradeweb onboarded non-bank market maker Citadel Securities as a liquidity provider for its electronic US Treasuries trading platform.
Perkins added that the company has been in talks with a number of potential sponsoring dealers—yet while the feedback has been positive, none are as yet live.
This is largely due to unwillingness by dealers to grant buy-side control over liquidity pools.
“While sponsored access makes sense, dealers will only give up clients under the most forcible of issues,” said Anthony Perrotta, chief executive, TABB Group.
Unlike TP ICAP, New York-based BGC says it remains firmly focused on the sell-side.
“As an IDB we cater to the banks,” said a spokesperson for BGC Partners. “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, acknowledged that while the market has opened up it has not suddenly moved from an IDB to all-to-all market provider.
"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 intermediary services,” said Dan Marcus, global head of strategy and business development, Tradition.