Interdealer broking

Middle men making sure the price is right

Interdealer brokers (IDBs) have traditionally

been rather publicity-shy, but a strong

performance during the financial crisis

has thrust this fairly mysterious sector into

the limelight.

An IDB acts as an intermediary between

dealers at investment banks, enabling banks'

traders to do large deals with one another

anonymously.

For example, assume a trader wants to buy

two million shares in Company A at 50p each.

They check prices and availability with an IDB.

If the trader is happy with what 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, particularly in

volatile markets.

Because IDBs get paid whenever people

trade, they make money whether the market

is rising or falling. High levels of price

volatility in the stock markets are actually

beneficial to them.

Key players

Five big firms dominate 70% of the market,

according to analysis by Celent. These

firms are ICAP, Tullett Prebon, GFI, BGC

and Tradition.

Roles and career paths

Interdealer brokers recruit graduates for two

main roles - voice and electronic broking.

Voice brokers speak with clients on the

telephone, and execute trades around more

complex products, which typically require more

discussion or explanation.

Electronic brokers use computer screens

to check client needs and execute deals.

Electronic broking is all about speed, trading

cash or equity products in large volumes at

the right price, before the client's competitors.

Brokers usually specialise in a particular

product, which can range from anything from

options or futures to the various fixed income

products. The career path is straightforward -

junior broker, broker, desk manager, director,

head of division.

Pay and bonuses

Starting salaries range between US$40k and

US$50k, according to IDB headhunter Search

Partners.

The spread between base salaries for senior

brokers is large - US$120-220k - the general

rule being that the more complex the product,

the higher the salary.

But IDBs make most of their cash through

taking a percentage of the money they bring

in for the company. This can be anything from

35% to 50%, with the more confident brokers

pushing for a bigger cut and smaller base.

Skills sought

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, if a successful broker

leaves for a competitor, they'll often take their

business with them.

"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.

This involves a lot of client entertainment. While

the hours of a broker are reasonable - typically

7am to 5pm - a lot of your evenings are taken

up wining and dining clients. Damien Lee,

managing director of Search Partners, says a

junior broker can spend three or four nights a

week entertaining, "and you're still expected to

be at your desk at 7am the following morning."

Obviously, you have to keep clients sweet on a

more professional basis, too.

"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.