secondary market liquidity

sterling liquidity survey


The UK banks continued to assert their dominance in the sterling liquidity survey to the end of last year, with Royal Bank of Scotland (RBS), Barclays Capital (BarCap) and HSBC placing first, second and third for deals they brought to market.

But the gap between RBS and BarCap is narrowing in that sector, with RBS’s lead down to 12 points from 22 in the last survey in September. Indeed, while RBS maintains its clear lead in terms of first-place nominations (14 to BarCap’s five), BarCap was ranked top-three by 74% of the 33 survey respondents, to RBS’s 61%.

For all deals, UBS, which had topped that sector in the same survey one year ago – the last time a non-UK bank did so – just beat HSBC to third place behind RBS and BarCap.

One head of credit trading at a European bank in London said that the UK clearing banks have made an extra push in secondary market liquidity provision lately, after investing in staff and resources. Banks such as BarCap and RBS, which may not have traditionally focused in capital markets previously, have followed up on publicly stated intentions to build businesses and make markets in the asset class.

Over the past year, that has come most clearly at the expense of banks such as UBS, which in the October 2003 survey was the top-rated sterling liquidity provider for its own deals, and for all bonds. Yet now in fourth place for supporting its own deals, UBS is still the highest-ranked bank in the liquidity survey relative to its position on the bookrunner league table (fourteenth for the fourth quarter).

Before the emerging pre-eminence of the UK banks, Morgan Stanley was also rated as a number one market-maker, topping the sterling survey for all bonds in the June 2003 survey. Morgan Stanley now resides in the top five for its own deals and for all bonds, and also outperforms its fourth-quarter bookrunner placing at tenth. Conversely, Lehman Brothers, the fourth-ranked bookrunner in the fourth quarter, placed seventeenth in the liquidity survey for supporting its own deals.


This quarter, 33 of the largest institutional investors in sterling corporate bonds voted. Firms were asked to designate the one person most qualified to respond – usually the head of sterling credit trading. Voting was conducted via a secure website and respondents were asked to nominate their top five banks for each of the two categories. The results were aggregated, with five points awarded for first place and one for fifth.

To keep the survey simple, only two questions are used:

1. With regard to deals that it has brought to market, which bank provides the best secondary market liquidity for sterling corporate credits rated in the double-A to triple-B range?

2. With regard to all bonds, which bank provides the best secondary market liquidity for sterling corporate credits rated in the double-A to triple-B range?

The aim of the survey is to provide issuers with an idea of which banks are most willing to support deals in the secondary market – and, by implication, which are not.

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