The competitive positioning of Europe’s leading fixed-income dealers is increasingly defined by regulations and banks’ strategic responses to new rules that have altered the economics of the business, according to a study by Greenwich Associates.
The 2015 Greenwich Associates European Fixed-Income Study reveals that instead of fighting for market share, banks are increasingly focused on profitability as they work to preserve margins by improving productivity through cost reductions and by becoming much more selective about when and where they deploy capital.
“Dealers that once amassed huge market shares by providing coverage and liquidity to investors broadly across most or even all fixed-income products have been setting new strategies that seek to exploit their comparative advantages,” says Greenwich Associates consultant Andrew Awad.
The result of these shifts is a meaningful reduction in overall market liquidity that is not likely to reverse itself any time soon. Some 40 per cent of those who participated in the study are concerned with the lack of liquidity in fixed-income markets. With liquidity on the decline, investors have started searching for alternative sources.
Europe’s fixed-income markets will require significant amounts of dealer liquidity to function effectively for the foreseeable future. The need for a strong dealer market-making presence will become especially apparent in volatile or falling markets, when investors’ inability to find counterparties for trades could trigger a broader liquidity crisis.
“Our research results show the market moving in the opposite direction, with a number of dealers responding to disincentives created by the new regulatory structure by moving away from strategies based on providing liquidity to a broad universe of investors,” says Greenwich Associates consultant Frank Feenstra.
In this challenging and fast-changing environment, Barclays has secured the top spot in the list of 2015 Greenwich Share Leaders in European Fixed Income.
Barclays’ 11.3 per cent market share tops the 9.7 per cent share of number-two ranked Citi, which is followed by JP Morgan at 8.6 per cent, Deutsche Bank at 7.2 per cent, and the quartet of Morgan Stanley, BNP Paribas, HSBC, and Goldman Sachs, which are statistically tied with market shares of 6.0 per cent-6.3 per cent.
JP Morgan and Citi lead the market in credit product trading with statistically identical market shares of 12.3 per cent-12.8 per cent, followed by Barclays at 11.4 per cent. These dealers are the 2015 Greenwich Share Leaders in European Fixed-Income Credit Products.
Barclays tops the list of 2015 Greenwich Share Leaders in European Fixed-Income Rates Product with a market share of 11.5 per cent, followed by Citi at 8.6 per cent. Rounding out the list are Deutsche Bank, JP Morgan, RBS, and HSBC, which are all tied with market shares of 6.8 per cent–7.1 per cent.
Greenwich Associates asked 1,210 fixed-income investors to rate the dealers they use for fixed-income trading in a series of service categories. Dealers that receive ratings topping those of competitors by a statistically significant margin are named Greenwich Quality Leaders.
The 2015 Greenwich Quality Leader in European Fixed-Income Sales is shared by Citi and JP Morgan. Citi is also the Quality Leader in Trading, while JP Morgan claims the title of Quality Leader in both Research and European Fixed-Income Credit Products. In Rates Products that title is shared by Barclays and Citi
