In the consultancy’s annual ranking of the biggest banks in European fixed-income trading, Barclays was helped by its “clear lead” in rates products – government bonds, agency securities and interest-rate derivatives – while JP Morgan has a “commanding” lead in credit products, such as investment-grade bonds and high-yield.
Greenwich Associates said in a December 14 report that US banks slowed their advance into the European market in 2016, while Europe’s home-grown players saw their market-share stabilise.
A few even recorded gains, Greenwich said, though it didn’t specify which. The consultancy surveyed some 1,128 institutional investors to compile the survey, who report their top trading partners to allow Greenwich to estimate each bank’s market share.
Greenwich said that beyond the JP-Barclays-Citi trio, “a tight group of seven banks round out the top 10, separated by no more than 100 basis points in market share”.
Frank Feenstra, a managing director at Greenwich, said: “The big group of dealers now clustered together at the center of the market will begin to separate and differentiate, as some follow expansion strategies and some redirect resources away from prior areas of focus.”
The report also flagged radical change on the horizon. One potential trigger could be new EU rules that force swaps to be directed to clearing houses, institutions that sit between counterparties to a trade in order to verify it to the satisfaction of both.
Greenwich said that mandatory swaps clearing in the US has already driven up [the volume of] electronic trading and pushed the market toward “more standard” products. “That event is now on the horizon for the market in Europe,” the report said.
Moreover, the EU’s revised Markets in Financial Instruments Directive is set to come into force in January 2018. Mifid II has big implications for the provision of investment research by banks to fund managers, putting an end to investors paying brokers for research and execution together using client dealing commissions.
Greenwich said that 60% of the investors surveyed for its report said they “have come to terms with the fact that they will have to pay for research with hard dollars”.
The report predicted that Mifid II will “increase concentration” at the top of the European fixed-income research industry and create opportunities for smaller research outfits in niche areas of the market.
Woody Canaday, a managing director at Greenwich, said: “It remains to be seen how investors will react and how the dealers will adapt.”