UK-headquartered interdealer broker ICAP, which operates multiple markets including FX, and provides post-trade risk mitigation services, has today reported of its last quarter to date, in an Interim Management Statement for the periods October 1, 2013 through February 4, 2014.
Despite reporting group revenue 6% lower in Q3 over the prior quarter, due to challenging market conditions, highlights of recent new initiatives including the launch of ICAP’s Swap Execution Facility (SEF) in October, and launch of EBS Direct in November, both were recapped, along with TriOptima’s, an ICAP company, eliminating $41 trillion in gross notional outstanding via LCH.Clearnet compressions.
EBS Direct average daily volume (ADV) was said to have grown from $549 million in November to $2 billion in January. A modest increase in volumes, although still small in comparison to volumes traded on the EBS platform – which has seen average daily totals taper in 2013. The announcement of metals to be added to EBS Direct’s offering also followed yesterday’s EBS volumes, aimed to improve the available instruments.
Market Reform Driving Post Trade, Challenging Conditions in Other Lines
The reduced performance of Global Brokering figures that ICAP just reported yesterday for December as covered by Forex Magnates, was said to have less activity from investment banks as well as due to the start-up challenges with the SEF regulatory environment. EBS volumes jumped 23% to $87.5 bln in January 2014 over December yet were down 32% compared to the same month last year.
Meanwhile, performance on the company’s BrokerTec platform saw electronic trading in US Treasuries robust attributed to the US Federal Reserves tapering of its QE program, yet trading volumes in the G7 Major pairs slumped on the EBS platform. Record levels were noted, however, in EMEA and non-deliverable forward (NDF) pairs in January 2014.
Recently regulatory reform was said to have helped with post-trade risk and information products, with an increased demand for TriOptima’s subscription based portfolio reconcillation service Triresolve – which has over 800 customers, according to the official press release.
TriOptima’s other offering, TriReduce, resumed compressions on LCH.Clearnet’s SwapClear, was held back due to low interest rate volatility in the period although had a strong comeback towards the latter part of the period.
Group Revenue Down 6% YoY for ICAP’s Q3 Ending December 31, 2013
These mixed market conditions, together caused group revenue for ICAP to fall 6% in its 3rd quarter ending December 31, 2012, and 5% lower Year-over-Year (YoY) on a constant currency basis (assuming fixed exchange rates).
However, a cost savings programme remains on track and management’s expectations for PBT (Profit before tax before acquisition and disposal costs and exceptional items) for the full year remain unchanged, also on a constant currency basis. There were a number of factors stressed that could hinder performance in the final quarter (ending March 31, 2014) for the firms Global broking division, including continued bank deleveraging and the resulting potential impact on financial markets of the SEF made-available-to-trade (MAT) determinations mandating the execution of certain interest rate swaps on SEF from 15 February, according to the statement.
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Commenting in the press release, Michael Spencer, Group Chief Executive Officer of ICAP said, “trading activity across many markets was down in the third quarter, compared to the prior year, with a slower December than we anticipated. Although market conditions remain difficult, we saw a modest improvement in activity in January as the on-going debate about the Federal Reserve quantitative easing programme continued.”
Mr. Spencer added, “Innovation is vital for our success and our strong cash generation allows us to continue to invest in our future growth. The launch of the ICAP SEF was a very important project. We have had tremendous feedback from customers to our SEF and I am pleased that it is the market leader in interest rate swaps. We are also seeing the tangible benefits of our investments in post trade, as the regulatory push for risk mitigation drives demand for our solutions.”
Call With CEO, Chief Finance Director and Communications Director
A conference call was scheduled at 10am GMT, the Groups CEO Michael Spencer is expected to speak on the publicly accessible conference call, also attended by the firms Chief Finance Director, and Communications Director Serra Balls. Shares of ICAP plc on the FTSE 100, were little changed around time of publication by Forex Magnates.
During the call, Mr. Spencer responded to questions from a Merrill Lynch analyst, with regards to the recent fall in revenues, electronic trading volumes on EBS direct and the effects MAT determinations for the firms new SEF business.
Mr. Spencer responded that EBS Direct had a few $3bln days for its total volume traded (during January), and wasn’t sure of the effects of made-available-to-Trade determinations but thought between now and mid-February that certain exemptions and/or no-action letters from the CFTC could result but reiterated that he had no idea on making such a prediction.
In further questions from another analyst, the cost-structure of EBS direct was discussed and Mr. Spencer said that it depends on how the technology cost is allocated as it runs on the back-bone of the firms main EBS staple platform for FX, and how the offering is being rolled out on less liquid currency pairs, along with the recent metals launch, and plans to launch NDF’s as well and may rename the offering as ICAP Direct, from EBS Direct.
In response to questions about the ongoing global FX probe and whether or not ICAP was drawn into it, Mr. Spencer said 95% of EBS’s FX business is Electronic, with voice broking accounting for a very small portion, and doesn’t believe they are caught up in the investigations at all, and didn’t have anything else to add on the matter.
Also Spencer said he was supportive of the ISDA fix initiative, something the firm was instrumental in collating the data for nearly a decade for USD based fixings, and understands the choice ISDA made recently to consolidate the fixing with one provider (Thomson Reuters) – and said it had no impact on ICAP business, as covered by Forex Magnates previously.
There was no further information available on any other investigations underway. Finally, some 200 customer were said to be live on EBS direct, including Liquidity Providers (LPs) and Liquidity Consumers (LCs), and how this is still a very small market penetration and ICAPs Chief said he hoped that the same time next year around that the number would be much higher than that.