London’s ICAP Plc is seeing 85% of its mortgage bond business disappear as major banks pull back from third-party platforms in favor of internal electronic networks. Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and seven other banks switched their brokering business from ICAP’s Brokertec system to the internally-owned trading platform Dealerweb, according to a report by Bloomberg News. Brokertec posted $6bn in daily transactions in the week ending April 8, from $40bn in late February, according to a Bloomberg News analysis of trading data. The news marks a turnaround from the traditional third-party system banks use to trade with one another in the so-called “to-be-announced” market. Other partners in Dealerweb include Morgan Stanley (MS), Citigroup Inc. (C), Bank of America Corp. (BAC), Credit Suisse Group AG (CS), Deutsche Bank AG, UBS AG (UBS) and Royal Bank of Scotland Group Plc. The use of the internal platform potentially reduces fees for the banks that own the trading company, according Craig Pirrong, a University of Houston finance professor. “There can be some market power if one platform becomes dominant,” Pirrong told Bloomberg. “It could lead to higher costs for customers.” It could also signal lean times for third-party bond brokers shunned by the banks, according to John Jay, a senior analyst at financial services consulting firm Aite Group LLC in Boston. The banks “basically walked away with the market,” Jay told Bloomberg. “They’re taking out the middleman.” Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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