This year’s Risk.net rankings of interdealer brokers offers a snapshot of an industry on the cusp of one of the biggest regulatory shakeups seen in European markets for more than 30 years.
Once the revised Markets in Financial Instruments Directive (Mifid II) finally comes into force next year, an industry that has consolidated enormously in recent years could shrink further still.
Given the increasing technology costs of complying with Mifid II, for the dwindling number of small and mid-sized brokers that specialise in specific products or currencies, survival is likely to be difficult without the umbrella of a larger firm to stand under.
This is illustrated by the likes of Gottex Brokers. The Lausanne-based firm’s decision to enter into partnership with Tradition last year was driven by the firm’s experience of how the derivatives market changed in the US when the swap execution facility (Sef) trading rules came into force in 2013. Back then, Gottex decided the cost of establishing a Sef was prohibitive – and lost some US customers as a result.
Now, following the deal, the firm can use its partner’s infrastructure to trade with clients in the post-Mifid II world. Brokers say they expect to see more arrangements like this after the new regulation is enacted.
In the meantime, this year’s survey gives an indication of how the competitive landscape has developed in the wake of the big consolidations seen in 2016. Once again, Icap tops the overall brokers table, while new associate Tullett Prebon lost its long-held second position in the rankings to BGC. For the purpose of the survey, we ranked the firms separately, reflecting the fact that the two brands continue to compete within the newly created TP Icap entity.
The results give a good indication of the strength of this new giant across asset classes following the merger. While Icap tends to dominate in interest rates across most of the currencies, Tullett Prebon leads the pack in other areas, taking number one spot overall for foreign exchange, for example.