Banks eye cost cuts on broking

Investment banks are looking at setting up their own interdealer broking systems to rival the likes of Icap and Tullett Prebon in the interest rates and credit derivatives markets.

Two rival projects are reported to be under discussion in a move experts say would allow the banks to reduce their costs. Interdealer brokers trade about $7 billion (£3.5 billion) a year in the interest rate and credit derivatives markets.

The more advanced project, code-named V10, is a grouping of eight banks including Morgan Stanley and UBS. It is said to be a combination of voice broking and electronic broking involving over-the-counter derivatives. The banks have reportedly put up $5 million each.

The rival scheme is said to involve JPMorgan, Deutsche Bank and Goldman Sachs, which are looking at creating an electronic broking system. It is far less advanced than the rival scheme, with no formal grouping yet agreed. It could see the banks set up their own standalone system or form a joint venture with an existing interdealer broker.

Both ventures echo the investment banks' equity trading projects such as Turquoise and Rainbow.