ICAP's Fiscal Q1 Revenue Lower by 14% Y/Y, TriOptima Grows Double Digits

While the company's post trade risk and information division keeps growing steadily, ICAP's Global Broking division has been hit by

icap-logoAccording to an interim management statement released by ICAP, the company is marking double digit revenue growth in its Post Trade Risk and Information division (notably TriOptima), while its Global Broking business is suffering from lower volatility across different asset classes from interest rates to foreign exchange. The firm boasts record volumes for its EBS direct platform, however, the growth in this division comes from a very low base totalling $11 billion per day in June.

Tough market conditions have been cited as the main reason for the reduced revenue flow from EBS and the firm’s fixed income markets trading platform, BrokerTec. Special factors have been mentioned in the year-on-year volumes comparison, focusing on increased volatility of the Japanese yen(EBS) and the speculation about the Federal Reserve’s tapering effort (BrokerTec) which went on throughout 2013.

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According to the company statement, the cost savings programme which started in 2012 remains on track and is set to bring annualized savings of £60 million as the firm continues to focus on cost effectiveness.

Average daily volumes (ADV) for electronic trading platforms BrokerTec and EBS in the fiscal Q1 of 2014 amounted to $707 billion, which was lower by 10% from the previous year. The company reiterated muted activity on its EBS Market, which comes as no surprise considering the multi-year lows in volatility. That said, FX trading volumes at competing Thomson Reuters’ FXall platform have marked record highs in June.

While the ADV on the relationship-based disclosed liquidity service EBS Direct has shown steady growth since its launch last year, this comes from a very low base. More than one third of the volumes transacted on the platform has been in British pounds, Canadian dollars and Australian dollars, for which EBS has not historically been a primary trading venue.

The electronic arm of ICAP’s SEF i-Swap has achieved record highs in the month of June, totalling $25 billion daily and 557 trades. Electornic trading accounted for almost a third of all US dollar interest rate swaps (IRS) at ICAP which was higher by 23% than a year ago.

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Overall, the firm’s Global Broking revenue declined by 19% on a constant currency basis, as the division accounts for less than 30% of ICAP’s profits.

The firm has reported double digit revenue growth in its Post Trade Risk and Information division with high demand cited for TriOptima’s compression (triReduce) and portfolio reconciliation (triResolve) services, and an upturn in activity related to ICAP’s risk mitigation services, Reset.

Since the firm released its 2013 financial year results back in May, more than £28 million of annualised cost savings have been identified through broker headcount reduction and one-off costs which will be treated as an exceptional item. With the total in savings for this fiscal year expected at around £60 million, over the past three years the total amount of cost optimisation would total almost £200 million by the end of this fiscal year.

Commenting in the company announcement ICAP’s Chief Executive Officer, Michael Spencer said, “The company’s post trade businesses are growing strongly, supported by accelerating demand for risk reduction services. During the quarter we have made further progress with our growth initiatives. Volumes on EBS Direct and on i-Swap in US dollar reached new highs, in addition to a record number of compressions within triReduce and further expansion of triResolve’s customer base.”

He further elaborated on the Global Broking division saying, “Conditions are still very difficult, and we continue to mitigate these challenges by increasing the flexibility of our operating model, focusing on priorities and delivering cost efficiencies.”

In conclusion to his statement Mr. Spencer has confirmed cost optimisation efforts are on track by saying, “The Group is in the process of progressing a number of multi-year structural projects to enhance the efficiency and cost effectiveness of the organisation which will result in a more efficient corporate structure and more variability in its cost base. These will enable ICAP to continue to invest in products and services to drive future growth across the Group.”

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