This article was written by Jock Percy, CEO of Perseus.
This year will mark the 30-year anniversary of the original founding of Michael Spencer’s Intercapital Private Group (ICAP). Three decades is a long time, especially in business, and its evolution into the market-leading ICAP has corresponded with some of the most profound changes to the structure of the financial industry along the way.
Spencer’s announcement in May that ICAP will be rebranding as NEX Group signals a radical departure that once again reflects market structure changes on a global scale.
The name change will mirror the new business model following ICAP’s disposal of its voice broker unit – once its core business and an intrinsic part of its public image – to Tullett Prebon, which is due to be completed later this year. Under the terms of the deal, the ICAP brand will transfer to Tullett while the NEX brand will reflect a newly re-focused electronic markets and post trade business.
But what can this tell us about the wider changes happening within the financial market infrastructure and how can you ensure your business remains agile in the face of this evolution?
Trading moves on-screen
Many will naturally point to this move as yet another nail in the coffin for voice broking, which has been in decline for some years. The impact of increased regulation, shrinking risk appetite and narrow margins have certainly all taken their toll.
In ICAP’s annual results, released last month, sales for this business unit had dropped 8.3% year-on-year. Tullett says it is planning to realize cost savings from cuts to the infrastructure and technology of the combined voice broking business in a bid to boost profits, while ICAP already employs 8.6% fewer voice brokers compared to the same time last year.
Yet focusing solely on the decline of voice broking we may miss the bigger picture here. Instead, I would argue that the move demonstrates the rapid electronification of the financial markets and signals a rise in demand for post-trade and risk management services. Further proving the trend toward technology expansion, ICAP has recently signed a deal to provide fixed-income and currency market technology to China Foreign Exchange Trade System (CFETS). This move indicates the growing need for technology across all markets and how the soon-to-be NEX is capitalizing on this opportunity.
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When announcing the rebranding, Spencer said he believed electronic transactions are the “right place to be” and that there are “a lot of interesting things going on in the electronic space”. In fact, according to the Financial Times, as far back as 2012 Spencer was already predicting the rapid rate of change that would take place to the role of interdealer brokers.
Robust, ready and radical
This move frees the group from the substantial regulatory burden of regulatory capital and will allow NEX the freedom to adapt to and leverage market changes. It also highlights the success and potential for growth in its other businesses such as the post-trade processing and risk management network, Traiana, or its leading FX trading platform, EBS.
The soon-to-be NEX Group is also gearing up to compete in the fintech space with the creation of an investment arm, Euclid Opportunities, which has already acquired a hedge-fund orientated data analytics firm.
Undoubtedly voice broking was once a core component of the ICAP brand. Now it’s not. The decision to include the iconic ICAP name itself in the £1.1 billion ($1.5 billion) sale of the global broking business cannot have been an easy one, but I believe it may prove to be a key part of the newly rebranded group’s success.
A new name can only aid the transformation of ICAP into NEX as it aligns itself to the regulatory and market demands for electronic trading, post trade services and innovative product development. Even the group’s new name, so close to ‘Next’, sends a strong message to its customers about NEX’s ability and readiness to meet their changing requirements.
For all of us it should serve as a timely reminder to remain agile in these challenging market conditions, ensuring that you have the resources and underlying infrastructure to deploy both business and financial strategies to remain on the cutting edge of industry development for the next thirty years, and beyond.