New research from Greenwich Associates suggests that some non-bulge bracket dealers that captured market share in fixed income trading during the global credit crisis will struggle to retain that business as markets continue to normalize.
Throughout the global credit crisis, fixed-income markets in the United States and Europe were rife with talk about new firms from outside the traditional bulge bracket that were capturing trading volume by stepping in to fill the liquidity vacuum caused by the retrenchment of larger dealers. Although many of these opportunistic firms were known names with well established regional or specialist franchises, the group also included an emerging cadre of agency dealers who capitalized on severe liquidity shortages to win business without putting their own capital on the line.
Despite the buzz about these firms, research from Greenwich Associates suggests that many of these non bulge bracket dealers will be hard-pressed to maintain trading volumes once bulge bracket firms begin reasserting their balance sheets. In truth, of all the firms that emerged as alternative sources of liquidity for large institutions in 2007 and 2008, only a handful have a realistic chance of transforming crisis-period gains into enduring trading relationships with big institutions, says Greenwich Associates consultant Andrew Awad. These firms have one trait in common: the ability to dedicate capital to the business.
Seizing the MomentResearch from Greenwich Associates confirms that fixed-income dealers from outside the traditional bulge bracket made meaningful inroads among large institutions during the global liquidity crisis:
More than 36% of the U.S. institutional fixed-income investors participating in Greenwich Associates annual Fixed-Income Study last year confirmed that they had increased the amount of trading business they did with non-bulge bracket dealers from 2008 to 2009 as part of their response to global credit market dislocations.
A handful of non-bulge bracket dealers captured significant amounts of market share from large institutions from 2008 to 2009. Cantor Fitzgerald and Jefferies & Co. doubled its market penetration among U.S. fixed-income investors over the period.
In addition, several firms made meaningful progress in specific products such as mortgage products, high-yield and distressed debt. In Europe, RBC Capital Markets had meaningful gains in credit.
D.C.