Those that have traded OTC derivatives and / or fixed income products are well
aware of the integral role long-played by inter-dealer brokers, or “IDBs”.
Because “capital trades” have become few and far between, firms such as
Cantor Fitzgerald, Prebon, GFI, InterCapital, and other boutiques have
historically provided an important link between sell-side primary dealers
seeking hard-to-fill liquidity on behalf of their respective buy-side
institutional clients and prime brokerage hedge fund customers.
Within the exchange-listed product arena, a variety of wholesale market
“brokers”, both traditional “voice-based”, and more recently, dark pool
crossing networks, play similar roles; most typically in the course of
facilitating orders in large share blocks for both actively-traded and
That said, as exchange-listed equity options, index products, and ETFs
continue to attract exponentially-increasing capital flows, these seemingly
transparent, screen-based markets are actually becoming increasingly
fragmented thanks to the preponderance of liquidity pools, trading centers,
the numerous “open” and “closed” transaction systems, and the many competing
Consequently, buy and sell-side traders focused on these “direct access”
products are faced with the challenge of sourcing optimal liquidity and most
efficient pricing for hard-to-execute trades. In turn, many fund managers
and traders are increasingly turning to inter-market-brokers; those that
seamlessly connect to multiple market centers and the wide array of market
participants throughout the trading market ecosystem.
Case in point: New York-based WallachBeth Capital (“WBC”). A self-described
“boutique”, WBC’s team of former proprietary equity option traders and
exchange brokers are often at the core of the actual market by virtue of
their “sitting on top” of walls that separate market participants.
Through open-line connections to sell-side facilitation desks, exchange
floor traders, off-floor market-making firms and buy-side managers, WBC
provides a unique service to market-makers, bank trading desks, regional
dealers, and the assortment of prominent hedge funds that are continuously
pursuing traditional and black-box hedging opportunities.
Noted David Beth, co-founder and President of WallachBeth, “The fact is,
however pervasive “screens” have become, they’re rarely three dimensional.
Accessing the real liquidity and discovering the best pricing requires
picking up a phone, or IM’ing someone that is continually canvassing the
“natural market” and those that have an axe in particular names, or
particular types of option trades.”
Added Beth, “We know that prime broker trading desks are absolutely
irreplaceable when it comes to servicing a customer that insists upon
split-second immediacy; but, we’re equally sensitive to the nuances of
executing an order. We know that many trades, whether initiating or closing,
don’t or shouldn’t require split-second execution. That’s when a sell-side
PB desk, or buy-side hedge fund trading desk will contact us directly. They
know that best fills, as measured by execution price, market impact and
execution “cost” are secured by shopping around, and that we’re at the heart
of the wholesale supermarket.
The true value of firms such as WBC is apparent not only because
inter-market brokers are often the defacto color commentators of the
internal market place, but they are uniquely positioned to facilitate the
execution of a large block, a complex spread or a thinly traded ETF, often
within the wholesale market’s prevailing bid / offer quotation.