The rise of trading boutiques and agency brokers that set up during the financial crisis to capitalize on wide bid-ask spreads and reduced bank liquidity is now in reverse. Industry participants say employees are leaving the small dealers they joined and returning to the large brokerages. A survey by US data collector Discovery showed a big turnover at broker dealers in February, with movement doubling since the beginning of December. The largest movements were among the independent broker dealers, while wirehouse outflows of representatives slowed.
"For several months there were high spreads and cheap asset valuations, which created opportunities for aggressive firms to move in. But that has now gone away to a great degree," says Shubh Saumya, partner in the financial institutions practice in New York at the Boston Consulting Group (BCG).
Different models
Competing with the large banks on trading now means having to be efficient in the more liquid, commoditized markets. Saumya adds that in story paper, where activity is driven by a lot of event risk such as in high-yield, there is still room for smaller shops, but "they must know who to target in terms of clients and how to cover them.