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The 90s were a golden era for Cantor Fitzgerald. The firm served as the top Treasuries bond broker with 90%+ market share. In 1999, they launched electronic platform eSpeed and began migrating customers onto their new screen.pic.twitter.com/rb1nF2Gq4Z
Cantor's big bank clients wanted to take power from the broker & launched a rival platform, called BrokerTec, that same year. The fight for the Treasury market looked set to begin, with the top broker facing off against its largest clients. That is, until September 11, 2001.
Cantor Fitzgerald's offices were located near the top of the north World Trade Center tower. That terrible day, over 650 of its employees were killed in the attacks - including many Treasury bond brokers & eSpeed market operators.pic.twitter.com/UEedpYRKX9
Miraculously, the firm's survivors were able to re-open their electronic markets two days after the attacks, but the impacts of Cantor's loss loomed large. While Cantor turned to recovery mode in 2002, BrokerTec began to overtake eSpeed's market share.
BrokerTec's rise was not without scandal. As market share quickly flipped their way, the Feds began investigating anti-competitive practices among the owning banks. They argued the banks were boycotting eSpeed, not trading efficiently but to build up their own platform.pic.twitter.com/7CVrMtk79i
In 2003, the DOJ pressured BrokerTec's owners to sell to ICAP. BrokerTec stayed w/ ICAP until 2018, when $CME bought it as part of a $5.5 billion deal for NEX Group.
Meanwhile, eSpeed kept lagging, and was ultimately sold to Nasdaq in 2013, where it still sits today.pic.twitter.com/N4Gv71dIgq
eSpeed currently owns ~15% of the inter-dealer Treasury market; BrokerTec owns more than 70%:pic.twitter.com/JJ8OmaqMYL
Takeaways: A consortium of banks is behind almost every change in exchange power. If banks aren't behind it, it probably won't succeed. Sometimes it takes a perfect storm of competition, technology and even tragedy for an incumbent exchange to lose its hold on a market.
Sources: https://www.nytimes.com/2002/05/17/business/bond-broker-inquiry.html … https://www.ft.com/content/05c4376e-7955-11d9-89c5-00000e2511c8 … https://www.economist.com/finance-and-economics/2001/09/20/carrying-on … https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr381.pdf …
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