Transaction with Tullett Prebon on Track

ICAP Will Rebrand to NEX, EBS and BrokerTec Revenues up 2%

Following the sale of ICAP’s voice broking business to Tullett Prebon, ICAP will rebrand remaining business to NEX.

ICAP plc (LOB:IAP) has published the latest figures related to the company’s operations throughout the year that ended on March 31st 2016. The company registered a decline of 6 per cent in revenues to £1.2 billion ($1.72 billion).

Despite the overall decline, ICAP plc’s electronic trading business remained in expansionary territory with the results from FX trading and bond trading platforms EBS and BrokerTec both increasing by 2 per cent year-on-year.

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Looking at the bottom line the operating profits declined by 12 percent to £221, with the operating profit from electronic trading declining by 16 per cent to £78 million ($112 million).

The company has also announced that following the transaction with Tullett Prebon related to the sale of its voice broking unit, it will be consolidating its remaining businesses within ICAP NewCo under a new brand name – NEX. The businesses of ICAP that will become part of NEX are exchange-like electronic trading platforms EBS and BrokerTec, post-trade risk mitigation unit TriOptima and Reset, the transaction processing uint Traiana, the financial technology incubator Euclid and ICAP’s Information Services business which is related to the electronic trading platforms.

The transaction with Tullett Prebon remains on track and the trading profit before tax was impacted by a £7 million loss from foreign exchange transactions.

The company’s CEO Michael Spencer commented on the results: “It has been a transformational year for ICAP and I believe that we are now on the cusp of one of the most exciting eras in the Company’s 30-year history. The Transaction to sell our Global Broking and associated information business to Tullett Prebon remains on track to complete later this year.”

“Our ambition is to create the world’s leading multi-product, global electronic transaction network for OTC products and post trade services. The new electronic markets, post trade and Euclid investments businesses, which we will become once the Transaction completes, will be renamed ‘NEX Group plc’; a new name for a new company that intends to lead the market in technology innovation in global financial markets,” Spencer added.

EBS Results Unmasked

The performance of ICAP’s electronic foreign exchange trading platform was consistent with a broad slowdown – reported revenues increased 2 per cent, while on a constant currency basis the figure declined by 5 per cent to £126 million. Looking at the trading volumes, the average daily volumes figure decreased by 9 per cent to $90 billion.

The direct liquidity providers connectivity segment EBS Direct registered a 33 per cent rise in its performance, marking an average of $20 billion daily in the final quarter of last year. The number of liquidity providers has increased from 17 in 2014 to 33 in 2015. Liquidity consumers have increased from 268 last year to 460 this year.

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The beta launch of FX forwards and swaps in December last year is likely to further expand EBS Direct in the coming quarters with interest from corporates and asset managers likely to increase.

Looking at the EBS Markets part of ICAP’s foreign exchange unit, the introduction of offshore Chinese renminbi trading through non-deliverable forwards has resulted in an increase of trading volumes by about 55 per cent year on year. The move has propelled the USD/CNH pair into third spot amongst the most actively traded pairs on EBS Markets after the EUR/USD and the USD/JPY.

A Challenging Macro Environment

ICAP’s CEO highlighted in the announcement that the firm remains part of a challenging global environment with a number of factors affecting the company’s business. With the increased competition in the industry, the profit margins of ICAP have declined. Despite the rise in revenues from ICAP’s EBS foreign exchange business and BrokerTec, which is the firm’s bond trading platform, the bottom line suffered.

The operating profit margin from the electronic markets division declined by 6 per cent between April 1st 2015 and March 31st 2016 to 30 per cent.

Spencer explained: “Trading conditions continue to be challenging as a result of the macro economic environment, historically low and negative interest rates and continued bank deleveraging. These headwinds have naturally impacted our performance during the year. In the US in December 2015, we saw the welcome first step in raising interest rates but in what is likely to be a long and slow journey towards more normal market conditions.”

The latest piece of information suggests that the ongoing adjustment to low interest rates policy remains important for the business. With the likelihood of more central bank rate hikes diminishing in recent months and with the threat of Brexit hanging over the markets, the industry could be in for some more tough market conditions ahead.

Euclid Developments to Play Bigger Role at NEX

Elaborating on the company’s new businesses under NEX, Spencer said: “ICAP has continually invested in electronic platforms and post trade services, developing its products and services to remain at the forefront of our customer’s needs. Euclid Opportunities, our early-stage fintech investment incubator, which finds these new investments will play a bigger and more important role as we become NEX Group plc.

We recently launched products and functionality which will extend our reach to a wider customer base, particularly the buyside. The most important of these are Forwards on EBS Direct, BrokerTec Direct and triResolve Margin. Euclid Opportunities completed the acquisition of ENSO which provides operational insights and key analytics to many of the world’s most successful fund managers, making significant progress towards developing a key new customer base,” he concluded.

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