Fixed Income Pricing Comparison Reveals a Competitive Advantage for Our Client

The Challenge

case_study_moneyA leading multinational brokerage firm with over $1.5 trillion in assets wanted to understand bond pricing for commission- and markup-based firms across municipal and corporate bond markets. The goal was to find out how the firm’s fixed income pricing and depth of bond inventory compare to their core self-directed competitors and a few major full-service brokerage firms.

The Solution

Corporate Insight downloaded the online bond inventories of a handful of commission- and markup-based brokerage firms, focusing on a representative set of corporate and municipal bond issuers. Since bond prices fluctuate with time, we downloaded the data during a tight timeframe in order to ensure the most accurate price comparisons. We then merged the downloaded data and compared the prices that different firms offer for the same bonds in three different ways:

  1. Lowest price – Took the lowest price per CUSIP for each competitor.
  2. Target purchase – Focused on offerings with the ability to purchase 10-20 bonds, the most standard offerings.
  3. Dealer-to-Dealer – Compared offerings with the same CUSIP, minimum required purchase and quantity available for purchase.

We found how likely it is for our client’s price offerings to beat competitors’ in each of these scenarios, in addition to calculating the average price differentials. We then converted those to actual cost differentials, taking into consideration the fact that quoted bond prices do not reflect actual monetary value but rather price as a percentage of bond face value. Since our client also wanted to know how the depth of their bond inventory measures up to their competitors’, we found the number of unique CUSIPs and bonds offered by each reviewed firm, unique bond being defined as a unique pair of CUSIP and quantity available for purchase.

The Impact

Our analysis helped our client see where it stands relative to its key competitors in terms of bond pricing and depth of inventory. We also provided the firm with objective evidence of its competitive pricing advantage.