Interdealer brokers (IDBs) have traditionally been publicity-shy, but a strong performance during the financial crisis has thrust this fairly low-key sector into the limelight.
An IDB acts as an intermediary between dealers at investment banks, enabling banks’ traders to do large deals with one another anonymously. This allows high-profile investors to execute trades without the scrutiny of the market.
For example, assume a trader wants to buy two million shares in company A at 50 cents each. They check prices and availability with an IDB. If the trader is happy with what the IDB has to offer, the IDB will execute the deal. In return, it takes a small percentage as commission, which can be very lucrative, particularly in volatile markets.
Because IDBs get paid whenever people trade, they make money whether the market is rising or falling. High levels of price volatility in the stock markets are beneficial to them.
Four big firms – ICAP, Tullett Prebon, GFI and BGC – dominate 70% of the market globally. Tradition is another key player and Collins Stewart offers interdealer broking as part of a wider range of services.
Roles and career paths
Interdealer brokers recruit graduates for voice and electronic broking. Voice brokers speak to clients on the telephone and execute trades around more complex products, which typically require more discussion or explanation.
Electronic brokers use computer screens to check client needs and execute deals. Electronic broking is about speed, trading cash or equity products in large volumes at the right price, before the client’s competitors.
Brokers usually specialise in a product, which can range from options or futures to fixed-income products. The career path is junior broker, broker, desk manager, director, head of division.
Pay and bonuses
Globally, starting salaries range between $40k and $50k, according to IDB headhunter Search Partners. The spread between base salaries for senior brokers is large – $120k-220k. The general rule is the more complex the product, the higher the salary.
But IDBs make most of their cash from a percentage of the money they bring in for the company, anything from 35% to 50%, with more confident brokers pushing for a bigger cut and smaller base.
Interdealer broking is about relationships, so if you’re not a people person, don’t apply. In fact, such is the bond between broker and client that if a successful broker leaves for a competitor, they’ll often take their business with them.
“Interdealer broking is as much about people as it is the markets,” says Gary Smith, deputy CEO, London and EMEA at ICAP. “You will need to be quick-thinking, confident and ambitious to thrive in this exciting and fast-paced business.”
The job involves a lot of client entertainment. Recruiters in this area suggest that a junior broker can spend three or four nights a week entertaining and you’re still expected to be at your desk at 7am the following morning.
However, getting in requires more than just social skills. “We look for determined, intelligent, driven individuals with core competencies that tend to be in mathematics, economics or science,” says Angus Wink, CEO, EMEA at Tullett Prebon. “We need highly developed networkers who are mature communicators with excellent analytical minds. The world is fast moving and dynamic, making an innovative and entrepreneurial spirit a must.”