Are agency brokers the new powers in debt trading?
Agency brokers have returned to fixed income just as investment banks have withdrawn from the market. Will they be able to create dark pools of liquidity and repair the breach in the distribution of debt securities? And does their increasing power herald the return of the primacy of relationships?
INVESTMENT BANKS ARE riven by fear – the reason why managers have removed virtually all risk from their trading desks. Not that they have much capital to support risk-taking anyway. Much of what has been taken for granted, in trading and investing in bond markets, is being re-evaluated.
But amid the gloom and dislocation, there are at last signs of organic repair in the debt markets. This is not a government-sponsored initiative to fix some broken aspect of the financial market. Agency brokers are returning to the debt markets, a development heralded as a return to the primacy of relationships. These are entrepreneurial forces seeking to leverage sales and trading experience to repair one of the biggest problems facing dealers and investors – secondary liquidity. These brokers aim to reconnect investors with each other, offering access to dark pools of liquidity that undoubtedly exist but at present cannot be easily tapped.
"We are really busy!" says Guy Cornelius, head of fixed income at Evolution Securities. "Of course the volumes are a fraction of what we used to see at a full-service investment bank but these are very early days."