Clive Connors, a longtime interest-rate swap player, recently started up Connors International, a new over-the-counter discount money broker using a flat, $10 per million fee pricing structure, instead of the standard sliding fee structure used by the major inter-dealer brokerages that charge more for trades further out on the curve. Connors, who previously worked at Tradition North America and Tullett Liberty, believes the current pricing structure wrongly implies that inter-dealer brokers are assuming yield-curve risk, when they are just lining up a bid with an ask.

The group brokered its first transaction last Thursday, a $200 million five-year trade, bringing in $2,000 in fees from each party. The same deal via traditional inter-broker dealer, assuming a 0.01 basis point fee, would cost each party $9,200.

Connors co-founded the company in mid-December with his brother Clifford Connors, each with roughly 20 years experience in interest-rate derivatives. Connors International plans on hiring three to four experienced brokers by the second quarter.

Connors theorizes that since the market's inception in the late 1980s - when there was much less demand for long-dated interest rate derivatives - the progressive pricing structure was more efficient due to the difficulty of lining up buyers and sellers for long-dated swap product. As the interest-rate derivatives markets have matured, becoming an integral part of the MBS, agency and corporate debt markets, demand has leveled out across the curve, but pricing has remained the same.

"Whilst our customer base is continuing to cost-cut and streamline operations, money brokers appear surprisingly reluctant to do the same," says Connors. "This provides its client base enough transparency on brokerage structure to free up wasted time and effort previously spent on negotiating lower fees."

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