An Inter-dealer broker (IDB) is specialist

financial intermediary A financial intermediary is an institution or individual that serves as a middleman among diverse parties in order to facilitate financial transactions. Common types include commercial banks, investment banks, stockbrokers, pooled investment funds ...

that facilitates transactions between

broker-dealers In financial services, a broker-dealer is a natural person, company or other organization that engages in the business of trading securities for its own account or on behalf of its customers. Broker-dealers are at the heart of the securities and ...

, dealer banks and other

financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...

s rather than private individuals.
IDBs
act as intermediaries in the

financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...

s working to facilitate transactions between broker/dealers and dealer banks in markets where there is no centralised exchange or

market maker A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the ''bid–ask spread'', or ''turn.'' The benefit to the firm is that it ...

such as in the

bond market The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, b ...

. The largest inter-dealer brokers by trade volume, listed in alphabetical order, are: *ARRACO Global Markets ltd *BGC Partners *GFI Group Inc. *Global Credit Securities LLP *Gottex Brokers SA. *Louis Capital Markets LLP *PO Capital Markets Pty Ltd. *Reuters Transaction Services Ltd *TP ICAP Plc *Tradition (UK) Ltd. *Vantage Capital Markets LLP.

Fixed income securities

In the

fixed income Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the prin ...

markets, IDBs are specialized securities companies serving as intermediaries which facilitate transactions between broker/dealers and dealer banks in the debt markets.From the

Securities Industry and Financial Markets Association The Securities Industry and Financial Markets Association (SIFMA) is a United States industry trade group representing securities firms, banks, and asset management companies. SIFMA was formed on November 1, 2006, from the merger of the Bond Mar ...

’s educational piece explaining the role of Interdealer Brokers. Broker/dealers and other financial institutions utilize the secondary fixed income markets to execute their customers’ orders, trade for a profit and manage their exposure to risk, including credit, interest rate and exchange rate risks. There is no centralized exchange in the fixed income market. As a result, financial institutions need a way to find information, liquidity and anonymity for their trading activity. This need created a demand for the services of perhaps the least known and understood market participants, IDBs. IDBs in the secondary

government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...

, agencies,

corporate A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and re ...

and other debt markets, also known as “municipal securities broker’s brokers” in the municipal bond markets, are specialized securities companies who act as intermediaries working to facilitate transactions between broker/dealers and dealer banks in these markets. IDBs are sometimes described as providing a “Petri dish” of liquidity in the bond markets. That is, they provide a “nurturing environment” wherein market participants can ascertain information about a given market, thereby eventually facilitating a trade between buyers and sellers. The IDB community distributes information and facilitates transactions in the secondary, or wholesale, financial debt markets between dealers and dealer banks around the world. Typically, markets which make extensive use of IDBs include the corporate bond, fixed income derivatives, U.S. Government and Agency, municipal securities and emerging markets. Inter-dealer brokers play varying roles in each of the fixed income markets and have become instrumental to their effectiveness and efficiency. IDBs draw together buyers and sellers so that trades can be executed by market participants. IDBs provide potential buyers and sellers with the critical market information they need to trade. Inter-dealer brokers allow; * Enhancing

price discovery In economics and finance, the price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. Overview Price discovery is diff ...

and transparency via communicating dealer interests and transactions * Providing anonymity and confidentiality via their position in the “middle” of trades * Facilitating information flow via acting as a central information point * Facilitating enhanced liquidity via their broad range of contacts * Improving

market efficiency The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted bas ...

via their rapid access to liquidity * Lowering costs via their provision of prices to traders without incurring staffing costs *Faster processing of trades via new technologies

References

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External links

Understanding Derivatives: Markets and Infrastructure - Chapter 3, Over-the-Counter (OTC) Derivatives
Federal Reserve Bank of Chicago, Financial Markets Group Fixed income