The Blurring of the IDB Vs. D2C Models in Fixed Income and FX

Emergence of a Convergence?
by Joséphine de Chazournes, March 7, 2013
Industry Trends
Global, EMEA, North America


In the post-crisis environment, the historical market segmentation of wholesale versus institutional in fixed income and foreign exchange does not make sense. One trend seems to be the convergence of the IDB and D2C business models.

In the report The Blurring of the IDB Vs. D2C Models in Fixed Income and FX: Emergence of a Convergence?, Celent analyzes the numerous dealer-to-client (D2C) offerings that historical interdealer brokers (IDBs) have developed, as well as the IDB initiatives that some D2C players are launching.

Foreign exchange has been the most resilient product in the post-crisis environment. However, even this product saw a leveling of volumes below the $5 trillion mark last year. The IDB market keeps contracting, with EBS and Thomson Reuters volumes having decreased slowly nearly month over month since 2010 to nearly $200 billion in December 2012. Fixed income (FI) volumes are gloomier across the US and Europe, even in listed derivatives that are down 25% year on year. The only slightly positive trend is US corporate bonds, which are keeping up thanks to increased debt capital market activity, the last lending resort for corporates. In all markets, January 2013 has seen extremely good volumes come back, but they hardly seem to be signaling a recovery for 2013.

"As much as the FX and fixed income markets are different, one being extremely liquid, electronic, and unregulated, the other being less liquid, mostly OTC, and becoming ever more regulated, infrastructure changes are pushing them in a similar direction," says Joséphine de Chazournes, Senior Analyst with Celent’s Securities & Investments Group and author of the report. “Market players are trying to figure out ways to come out of the restructuring alive.”

In this report, Celent briefly explains the way these markets are segmented today. The report lists the drivers that are changing the market structure and explains how they impact various market players (IDBs, exchanges, multidealer platforms, single-dealer platforms). Finally, it analyzes the blurred IDB/D2C business models emerging across both FI and FX.

This 30-page report contains 13 figures and three tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Executive Summary




Market Overview



Recent Volume Trends



Market Segmentation


The Market Structure is Changing



Why Is It Changing?



Impact for Market Players


Emergence of a Convergence?



Prime Model



All-to-All Platforms



SEFs and SEF Aggregators




Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


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