Small is Beautiful

The Economist has an article describing how small financial firms are flourishing; fragmentation is now reversing the decades-long consolidation trend on Wall Street. In M&A, for example, advisory fees for boutique firms have grown from about 8% of the total pot in 2000 to nearly 30% today. Such firms, where they are publicly listed, trade at a premium to their bulge bracket peers.

The points that The Economist makes are interesting, but at DealVector we have to ask: what about in bond trading?

It has been stated repeatedly that the available trading balance sheet for the bulge bracket firms has shrunk to about one day’s worth of inventory. These balance sheets are down nearly 80% from the peak while corporate issuance has exploded (to nearly $4 trillion this year) on the back of low interest rates. Part of this activity has migrated to online platforms like MarketAxxess (for the liquid part of the market), and part of it has migrated to boutique trading firms. So fragmentation is occurring, in our view, as is fragmentation of data. And this is in a market that was already fragmented!

In the end, a proliferation of venues means that somebody must stitch that disparate data back together again. DealVector is focused on helping firms manage data from multiple sources — what we call Bond Workflow Management will become more important for bond market participants going forward. Something to help grow taller again!