Tullett has rattled off a succession of initiatives to grow its hybrid voice brokerage presence, at a time when many of its rivals are exiting voice to go fully electronic.
Tullett has teamed up with GMEX Group on a trading platform for FX options, obtained a long term licence to use CME Group’s hybrid voice/electronic technology, and bought Creditex’s hybrid voice broking business for credit derivatives from Intercontinental Exchange. All of this comes on top of its plans to buy ICAP’s global hybrid voice broking and information business later this year, in a deal worth around £1.1bn.
In an era of ever-increasing market electronification, velocity and cost-cutting, it’s easy to dismiss Tullett’s splurge on voice-hybrid broking as something of an anachronism. Why fork out more to support the lifestyles of a bunch of humans when computers can give you a price and a market with far less banter or regard for razzle-dazzle?
But Tullett’s non-binary approach is more forward looking than many understand.
For a start, the ICAP deal does place Tullett as the largest voice broker left in the market but it is not the only game in town. BGC maintains a strong presence through its GFI acquisition last year.
Tullett also makes a good case that voice and electronic are not two sides of a zero sum trade. There are plenty of occasions when the market needs both – and indeed a full spectrum of approaches.
Voice brokers earn their crust when orders are very large, or very complex. If bankers need quick market colour or help with pricing, impartial human interaction with someone long-weathered in the industry is no bad thing.
Sometimes, voice is the only way to get a deal done.
Oil transactions can take several days to complete. Those entering them might want to know quite esoteric information, such as the size of a given tanker or the chemical composition and viscosity of the oil. If the weather changes while the ship is en route, that could affect its arrival schedule into port. The long and short of it is there are any number of features and factors – known as uncontrollable variables – that you cannot find readily on a screen. But you can ask your friendly oil broker.
This is a wholly different proposition from trading equity, which is the most mature asset class. You would not call up a broker if you wanted to buy Sainsbury shares. Electronic is the mode of choice.
But even in equities, firms need to make a big investment in technology to stay strong and relevant. It is hard to be everything to everyone and much easier to be a specialist by picking your battles. Tullett is concentrating on assets where it can most add value, such as FX and credit.
Volatile market periods are also the opportunity for human brokers to come into their own. This opportunity may seem a way off in credit and equity, with volatility near historical lows. But tail risk remains a powerful worry and realised volatility can only go in one direction from here. When that happens, the screens too often go blank amid sudden changes in sentiment and market anxiety.
Such periods of market stress come around frequently. The calm in credit and equity of late – with brief exceptions, such as around Brexit – does not dispel the reality of big recent movements in oil and FX. Emerging markets have also undergone movement. Corporate bond volatility may not be as far away as some would like to think.
Tullett’s size and scope means that if one desk is quiet then it is highly likely another will be busy.
It is thus internally hedged and has an economy of scale in the functions of its senior brokers. It can remove much of the manual element by using 24 hour systems. The firm may be doubling its number of (real, human) brokers through acquisitions, but its tilt to voice is actually a look to the future.
