Another example of complexity driving better margins are the debt markets as compared to the equity markets. The debt markets have higher margins because there is more complexity in the variety of products, and because that complexity has been amplified as those markets have resisted the move to electronic marketmaking. See the discussion below from the Economist:
Margins on the debt side of investment banking have generally held up much better than they have on the equities side mainly because debt markets are vastly more complicated. Large companies will typically issue a single class of shares, and any subsequent issues will usually be completely fungible with the ones already outstanding. Yet companies will often issue tens if not hundreds of different sorts of bonds, and even the simplest issue will differ from the previous one because interest rates will have changed and it will have a different maturity. This provides rich pickings for bond traders as buyers will often have to hunt around to find exactly the bond they want. Gaël de Boissard, the head of fixed income and Europe, Middle East and Africa at Credit Suisse, points out that there are 38,000 different corporate-debt securities in America alone, only a few of which trade every day of the year. But pressures for simplification are rising. Investors and issuers want it in order to lower costs and improve liquidity, and regulators want to make sure they can clean up quickly if a large bank fails.
Innovations that have transformed equity markets, such as ETFs and electronic trading, are also making their way into debt markets. Goldman Sachs, UBS, Morgan Stanley, BlackRock and Bloomberg, a financial-data and news firm, are all experimenting with electronic bond-trading networks that try to match buyers and sellers.
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