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leadership position in Treasury brokerage could face a formidable threat if reported talks between the No. 2 and No. 3 players come to fruition.

Analysts say ICAP, the No. 3 Treasury brokerage (formerly called Garban-Intercapital) is in talks to buy BrokerTec, which is already a close second to eSpeed. While reliable data on market share is hard to come by, BrokerTec is generally said to control some 40% of the trades between Treasury bond dealers, behind eSpeed but ahead of ICAP.

A combined ICAP and BrokerTec would also recreate the voice-assisted electronic trading model eSpeed used to offer, analysts said, as BrokerTec completes all of its trades electronically, while ICAP is a voice-based trading operation. The combination voice-electronic model is still very popular with some traders, particularly those who want to complete larger, more complicated transactions, said Robertson Stephens analyst Justin Hughes. eSpeed discontinued most of its voice-based trading after parent company Cantor Fitzgerald lost many of its employees in the World Trade Center.


a merger would be a huge threat, because basically you'd have the old eSpeed model," said Justin Hughes, Robertson Stephens analyst. "Because of necessity, eSpeed has had to go to pretty much to a fully electronic model. Before, they leveraged the strength of the Cantor brokers with the liquidity of the electronic system. If you merged Broker Tec, which is completely electronic volume, with ICAP, which is voice -- you can kind of put together the old Cantor, eSpeed," he said.

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"Some people do prefer the voice-assisted method for larger transactions. At a minimum they like to talk to somebody, just to say what's going on in the market today. Even if that person enters the order himself, there's a client relationship there," he said.

Despite the threat, an actual deal between eSpeed's rivals is far from a reality and BrokerTec's future financial viability may depend on the Justice Department. In mid-May BrokerTec confirmed that it is being investigated for alleged anti-competitive practices that involve its relationship with founding shareholders, some of the biggest banks and brokerages in the U.S. and Europe. Under an agreement with the banks and brokerages, which include Goldman Sachs, Salomon Smith Barney and Merrill Lynch, BrokerTec gets a certain amount of transaction volume from them each month.

"There are few precedents to know what the legal implications are for something like this investigation," said one anaylst who preferred not to be named. "BrokerTec has done well, but they've been challenged for profitability. I don't know how their partners are looking at it. They might decide not to keep throwing money at it," he said.

Close to 100 electronic bond trading platforms have sprouted in the industry over the last several years, but only a few have made money. One is eSpeed, which said it

achieved profitability in the fourth quarter of last year. BrokerTec announced Monday that it has been profitable since the fourth quarter of last year. ICAP and another rival TradeWeb have also said they were profitable. eSpeed is scheduled to report its earnings in mid-June.

eSpeed shares have risen some 86% to $10.98 since they resumed trading after Sept. 11.

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