Evolution of the Interdealer Broker Industry: Smells Like e-Spirit

April 1, 2008

Abstract

New York, NY, USA April 1, 2008

The interdealer broker industry is in the midst of a structural change bought about by product standardization, liquidity consolidation, and electronification. These forces will shape the industry into an exchange-like structure in terms of its size, volumes, quality, and costs of execution and technology.

In a new report, , Celent examines the interdealer broker (IDB) industry's structure, growth drivers, product and customer portfolio, technology, and competitive dynamics. It examines three trends affecting the industry (product standardization, liquidity consolidation and electronification) and analyzes the implications of these trends in detail.

Celent finds that the industry is big and growing. Already US$7 billion in size in 2007, Celent expects it to reach US$9.3 billion in revenues in 2009. Furthermore, the industry displays characteristics of a mature market, with five players controlling over 90% of the market.

Source: Annual reports of IDBs, industry sources, Celent

The industry has been undergoing structural changes over the past five years. It is consolidating into four to five major players. The top three players command about 70% of the total industry revenue, up from less than 50% in 2001. Product standardization of major asset classes is a continuing trend in the capital markets. This results in volume growth but is also accompanied by margin pressures. Product standardization and margin pressures invariably lead to increasing electronification due to the superior quality and efficiency of execution that is characteristic of electronic trading. Electronification of the industry is growing at a fast pace. Celent estimates revenues from electronic brokerage to account for 65% of the overall IDB revenues over the next two-three years, up from 5% in 2004.

"Electronification of this once predominantly voice-based industry promises to alter it significantly," notes Sandeep Hebbar, Celent analyst and author of the report. "Although a sizable market opportunity exists for new entrants, they will have to toil hard if they choose the organic path for growth," he adds.

The 32 page report contains 22 figures and 4 tables. A table of contents is available online.

Members of Celent's Institutional Securities & Investments research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.  

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].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

New York, NY, USA April 1, 2008

Executive Summary 04
Introduction 06
Industry Characteristics 08
  Market Growth 08
  Growth Drivers 08
  Product Mix 10
  Customers 12
Evolution Toward an Exchange-Like Structure 14
  Product Standardization 14
  Industry Consolidation 17
  Electronification of Trading 18
  Role of Voice Brokering 21
Implications of Trends 26
Brief Profile of Key IDBs 28
  Key Facts 28
  Revenue 28
  Geographic Mix 29
  Product Coverage 30
Conclusions 32

 

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