By Terry Flanagan

Broker-Dealers Look Ahead

In 2008, a black swan landed on the lake of Wall Street.

 Bear Stearns, founded in 1923, was sold in a fire sale to J.P. Morgan Chase in March 2008. Lehman Brothers, founded in 1850, filed for bankruptcy in September, right around the time Merrill Lynch, which had been independent since its founding in 1914, agreed to a purchase by Bank of America.

The consolidation and reshuffling of the largest investment banks, known collectively as the bulge bracket, in one year was more than typically might occur over a decade or more. And tough times didn’t end there, as the ensuing ‘Great Recession’, tightening regulation, and slowdown in market activity have kept firms back on their heels.

 The impact for the institutional investment managers who rely on sell-side broker dealers for technology and trading products and services has been a scaled-back suite of offerings and fewer humans working the desk. That has been at least partly offset by improvements from a hungrier contingent of Wall Street firms that need to do more with less amid intense competition for order flow.

“On one hand, utilizing low-touch trading tools, expanding commission sharing arrangements, and having access to more specialized research at lower costs has benefited the asset manager,” said Steve Hedger, managing director of trading and investment operations at Fifth Third Asset Management, which manages about $9 billion. “On the other hand, the disappearance of several bulge-bracket firms and low utilization of high-touch trading desks has only added to the ever-increasing problem of sourcing liquidity.”


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