Flow Monsters Grab Rates Trading Share, Greenwich Says

The top five fixed-income dealers are capturing a larger share of trading in interest-rate swaps and U.S. Treasuries than before the financial crisis, according to research firm Greenwich Associates.

Those five -- Goldman Sachs Group Inc., Deutsche Bank AG, Citigroup Inc., JPMorgan Chase & Co. and Barclays Plc -- have a 65 percent market share in U.S. interest-rate derivatives this year, the highest in at least a decade, Greenwich Associates said today, based on an annual survey of institutional investors. The group’s share was 56 percent in U.S. Treasuries.

While many expected a regulatory push of swaps trading to clearinghouses and electronic platforms to bring more share to smaller firms, strong relationships and aggressive pricing at the top dealers have held that trend at bay, Stamford, Connecticut-based Greenwich said in the report.

“Regulators are unlikely to achieve their goal of creating a market that is less dependent on a few massive banks,” Greenwich said in the report. “While competition might intensify in the short term, Greenwich Associates expects the rates-trading business to concentrate even further into the hands of a small number of ‘flow monsters.’”

The 10 largest global investment banks generated $18 billion from rates trading in 2013, down from $29 billion in 2012, according to analytics firm Coalition Ltd. Many sell-side firms cited low activity in the business in the second quarter as interest rates stayed near record lows and traded in tight ranges.

The top five banks’ share in interest-rate derivatives was up from 60 percent last year and 56 percent in 2007, according to Greenwich. Still, buy-side firms are using an average of 7.8 dealers for their derivatives trading, up from 6.5 in 2009.

The greater market share comes in part from investors continuing to trade primarily with their clearing banks, even as they aren’t required to do so, Greenwich said. Large banks have been willing to take losses on their clearing businesses to maintain volume, and several European firms have backed away from clearing, according to the report.

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