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Remaking Market Making
Wall Street participants and observers alike believe that the low-cost electronic trading of securities will destroy market making and brokerage. The authors disagree. The economics of the business compare favorably with those of other investment-banking activities, such as securities underwriting, and the growth prospects are good. A fundamental misunderstanding of the way technology is changing the business has spawned the gloom-and-doom prognosis.
The take-away: Much of market making and brokerage are becoming commoditized, but players who invest now in new technology will find that they can greatly increase the volume of trades they process—and boost margins as well. Although a few large players are likely to capture the lion’s share of the value, smaller banks can create advantageous alliances to process their customer order flow.
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© 1992-2003 McKinsey & Company, Inc
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