The group’s size peaked at 46 firms in 1988 and shrank to just 17 in 2008 after Bear Stearns, Countrywide Financial and Lehman Brothers dropped out. The downfall of independent broker-dealer MF Global, which became a primary dealer in 2011 and was bankrupt by the end of that year, didn’t exactly embolden policy makers to relax criteria for entry.
Though the central bank lowered a capital threshold in 2016 to encourage smaller firms, it has admitted only one since: Amherst Pierpont, a smaller broker with expertise in mortgages, joined last year. A giant may be waiting in the wings, as Ken Griffin’s Citadel Securities, one of the largest trading firms in the world, has made no secret of its interest.
Another push to add capacity at this point might have appeal as the Treasury’s supply projections explode and the Fed wades deeper into unconventional policy -- including the possible return of WWII-era yield-curve control.
Those who weathered the recent volatility are putting their faith in the Fed’s next steps.
“It was challenging, a little more challenging than I remember the financial crisis,” said Gemma Wright-Casparius, a fixed-income portfolio manager at Vanguard and member of the Treasury Market Practices Group, which advises the U.S. government on bonds. “You could find liquidity -- and we did -- but you had to navigate around the market to do that,” she said. “The Fed has been aware of those issues.”
This article was provided by Bloomberg News.