Sectors explained: Interdealer Broking

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Interdealer Broking

Intermediaries working behind the scenes

Interdealer brokers (IDBs) have traditionally been publicity-shy but, as investment banking has hit the headlines during the financial crisis, this ‘middle-man’ sector has inevitably been thrust 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.

IDBs also have large trading floors, staffed by their broking employees, which can be noisy places. Despite an increasing number of electronic trades, voice broking – or taking orders over the phone – still plays a large part in the sector.

Key players

Five big firms dominate the market. ICAP is the biggest, followed by Tullett Prebon and then BGC Group, Tradition and GFI Group, a firm which specialises in more complex products.

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

Starting salaries at interdealer brokers average out globally at around $40-50k, according to specialist headhunters Search Partners. The more complex the product, the higher the pay, and some smaller brokers offer a higher percentage of the profits to individuals in return for smaller salaries. However, the spread between base salaries for senior brokers is large at $120-220k.

The big money is earned through taking a cut of the money brokers bring in for the company, which is anything from 35% to 50%.

Skills sought

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. Team moves are common among competing IDBs. “We look for an outgoing personality and the ability to build and maintain relationships and to be a team player,” says Karen Aflalo, human resources director, Americas, GFI Group. “We look mainly for finance or economics degrees.

We find it helpful when the candidate has played team sports in college as this is a team environment.” Mark Beeston, CEO, portfolio risk services at ICAP, adds that “all our businesses are

relationship-based.” Inevitably, there’s 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. Stamina, and the ability to work through an occasional hangover, are therefore important.

However, getting in requires more than just social skills. “To be a good broker you must understand the market you operate in, must be open to working with technology and have tech knowledge. You must also build and nurture good relationships with your clients and your colleagues,” says Aflalo.

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