Interdealer Broking

The middle-men making sure the price is right.

While the majority of financial services firms have suffered over the last two years, interdealer brokers (IDBs) have been doing conspicuously well. As a result, this fairly mysterious sector has been forced into the limelight.

As the name suggests, an IDB acts as an intermediary between dealers at investment banks, enabling banks' traders to do large deals with one another anonymously.

For example, let's assume a trader wants to buy two million shares in Company A at 50p each. He or she checks prices and availability with an IDB. If the trader is happy with the prices 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.

Because IDBs get paid whenever people trade, they make money whether the market is rising or falling. Recent high levels of price volatility in the stock markets have actually been beneficial to them.

Key players

Interdealer broking is quite unique in that five big firms dominate 70% of the market, according to analysis by consultancy Celent. These are (in descending order) - ICAP, Tullett Prebon, GFI Group, BGC Partners and Tradition.

Roles and career paths

"The main areas that interdealer brokers recruit into at an internship or graduate level are typically voice and electronic broking. However, there are in addition a number of important operational roles such as finance or risk where there is also a need for graduates and interns," says Alison Franklin, head of graduate recruitment at ICAP.

Voice brokers speak with clients on the telephone, and execute trades around more complex products, such as derivatives, which require more discussion or explanation. Electronic brokers don't actually speak to clients, but use computer screens to check their needs and execute deals. Electronic broking is all about speed and trading cash or equity products in large volumes, at the right price (hopefully) before the client's competitors.

Brokers usually specialise in a particular product. This could be anything from options or futures to the many different kinds of fixed income product. The career path is relatively straightforward - junior broker, broker, desk manager, director, head of division - by which time you're in the upper echelons of the company.

Pay and rewards

Graduate IDB salaries range between 25k and 35k, according to Search Partners, a headhunter which specialises in this market. The spread between base salaries for senior brokers is pretty wide - 80-150k - with the general rule of thumb being that the more complex the product, the higher the salary.

This is only half the story, though. IDBs make most of their cash through taking a percentage of the money they bring in for the company. This can be anything between 35% and 50%, with the more confident brokers pushing for a bigger cut and smaller base.

Skills and attributes

Interdealer broking is all about relationships, so if you're not a people person, don't bother applying. In fact, such is the bond between broker and client that the assumption is if a successful broker leaves for a competitor, they'll take their business with them.

This point is illustrated by a recent court case, in which Tullett Prebon took BGC to court for alleged unfair recruitment practice. Ex-Tullett COO Tony Verrier attempted to recruit 96 of his former firm's staff, offering one desk of six people 3.5m to move.

"The ability to develop strong client relationships is a key part of the job, particularly at the early stages of your career. In order to develop a long-term relationship with any client you need to be able to develop a bond of trust and understanding," says Mark Scally, head of HR at Tullett Prebon.

Relationship building involves a lot of client entertainment. Though the hours of a broker are reasonable - typically 7am-5pm - you can expect a good proportion of your evenings to be taken up wining and dining clients.

Damien Lee, managing director of Search Partners, says a junior broker can spend three to four nights a week entertaining clients: "And you're still expected to be back at your desk at 7am the following morning," he adds.

Obviously, you have to keep clients sweet on a purely professional basis too, or you risk losing them to a competitor.

"On the trading floor of an investment bank, traders take a position and therefore potentially a risk. Our business is more about swift execution - ensuring we can trade our clients' positions fast. Brokers need to be able to react quickly to find solutions to individual clients' needs," says Scally.