This note updates some of the material presented in an article a year ago reviewing the development of the gilt-edged market since Big Bang. It reports in particular on the capitalisation and financial performance of the gilt-edged market makers (GEMMs) in 1989 and on the degree of concentration of their market shares. It suggests that there was a significant improvement in the financial performance of the GEMMs in 1989.
The number of GEMMs contracted from twenty-two to nineteen during 1989, with three firms withdrawing in the late summer. There has thus been a net reduction of eight in the number of GEMMs in the period of just over three years since Big Bang, when twenty-seven firms began operating as GEMMs. In part reflecting the reduced number of GEMMs, the number of inter-dealer brokers declined from four to two during 1989 and the number of Stock Exchange money brokers from ten to nine.
The withdrawals from market-making during 1989 do not appear to have impaired the overall quality of service provided for clients nor the liquidity and competitiveness of the market. That there should be continuing withdrawals was not unexpected, but the contraction in numbers has been less than many commentators projected. An important reason why so many firms have continued as market makers may be that during 1989 the financial performance of the GEMMs showed significant improvement, achieving close to break-even in their overall profit/loss experience after sizable losses in the first two years after Big Bang.
The gilt-edged market: developments in market-making in 1989