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Global Broker Charts New Strategy for Growth in Over-The-Counter Capital Markets

Background and Challenge

In the wake of the 2007 worldwide financial crisis, a leading global inter-dealer broker with operations across the world’s principal financial centers found that its plans, assumptions and perspectives on the growth potential of major product groups had to be fundamentally re-assessed. In order to inform the business planning process and prepare a strategy for rapid recovery, the client needed to develop a comprehensive understanding of the new industry landscape, identifying the trends, drivers and opportunities that would underpin its medium-term performance.

Approach and Recommendations

L.E.K. Consulting was engaged to conduct a review of over-the-counter (OTC) capital markets, utilizing extensive primary and secondary research to address:

  • The current and projected size of the inter-dealer broker (IDB) market segmented by major product categories
  • Growth prospects for each IDB product category during the next three-to-five years
  • An overview of the scope for product innovation in IDB markets
  • Recommended new products that would add further growth opportunities

In conducting its evaluation, L.E.K. interviewed more than 70 industry participants across equities, foreign exchange and interest rate derivatives, money markets, fixed income and other securitized instruments, and commodities markets. In addition, a thorough review of government, non-government and press secondary sources was also conducted in order to accurately identify and characterize the market trends.

The data gathered enabled the team to assess the likely performance of OTC markets within the coming year, the short term (two-to-three years) and the medium term (three-to-five years). The case charted the balance sheet impact of the deleveraging process and confirmed a short-term preference for liquid low-risk assets; it also assessed the speed of recovery in demand for higher credit-risk-based assets, the timing and effect of likely regulatory intervention, and confidence levels around potential recovery profiles.

An examination of growth potential revealed the different medium-term profiles of various product areas and helped to identify where future opportunities might be generated, including distressed debt, carbon emissions and diversified energy products trading.

Results

L.E.K.’s work gave the client a deep understanding of the post-crisis dynamics of OTC markets and a comprehensive overview of market segmentation and growth prospects for each product group. The analysis constituted a major element of the client’s medium-term planning process, and enabled superior strategic decision making within the management team.