Ahead of today’s Annual General Meeting, UK interdealer, ICAP, has issued its Interim Management Statement for the period of April 1st to July 10th 2013. Following a tumultuous 2012 that led CEO Michael Spencer to announce last November that it “has been one of the toughest periods in my 36 year career in the wholesale financial markets”, the mood at ICAP has decidedly changed. While initially cautious after a solid first quarter of the year, ICAP announced that “the encouraging start to the financial year has continued.” The interdealer singled out that expectations of a tapering of quantitative easing brought volatility to the US Treasury market and higher volumes on its BrokerTec platform. They added that the inverse increase in monetary policies in Japan had led to increased yen volumes and higher year over year volumes on its EBS FX Trading Platform .
However, ICAP did point to lower interest rates which have had a negative effect on commodity trading activity. As a result of the mixed results in its businesses, ICAP reported that revenues during the quarter was 2% above the same period last year and “management’s current expectations for the full year remain unchanged.”
Commenting on the quarter, Michael Spencer, Group Chief Executive Officer said “we have made an encouraging start to our financial year. Trading activity in most markets appears to have stabilized and there has been a welcome increase in volatility in some asset classes, which has generated additional trading volumes. Our strong cash generation allows us to invest in our future growth. We have continued to innovate and develop during the quarter with the launch of iSwap in sterling last month and the EBS Direct pilot programme, our new relationship based disclosed Liquidity service, is progressing well. We are also seeing further benefits from our ongoing cost reduction programme.”
Group Performance
Relating performance of individual units, ICAP stated that revenues at its Post Trade Unit rose above Q1 figures. The growth was due to an increase of FX transactions processed on the Traiana Harmony network. However, overall group performance was mitigated by a decline in the Reset and ReMatch products which were impacted by low interest rates.
In its BrokerTec platform, average daily volumes (ADV) for the quarter were $659 billion, 13% above the same period last year. ICAP attributed the gains to the above mentioned speculation about an end to quantitative easing which led to an increase of US Treasury activity. As a result, during the quarter, ADV of US Treasury trading on the BrokerTec platform rose 51% from 2012 levels. However, ICAP explained that revenues didn’t rise at an equal rate to volumes as “the uplift in revenue was less pronounced than the growth in volumes reflecting the volume discounted tariff structure.”
In its EBS platform, ICAP reported that ADV were $128 billion, 1% above the same period last year. ICAP explained that volumes on EBS were supported by an increase in yen activity. They added that the roll out of the relationship based platform, EBS Direct, continues. EBS Direct had its beta launch in May with ICAP stating that “the initial group of four liquidity providers and over twenty liquidity consumers satisfied with the performance, and having achieved all of the objectives targeted in the beta phase, EBS Direct is now moving to a full commercial launch scheduled for late 2013.”
In its Global Broking division, ICAP stated that they achieved a “strong performance” in financial futures and options products which was based on recent volatilities in prices as well as onboarding new customers. They also added that its global equity derivatives business performed well, while volumes in credit and commodity products declined.
ICAP concluded its statement that “On 4 June, the CFTC published the SEF rules on the US Federal Register which will result in a change in the way that ICAP’s US business is regulated. ICAP is already well advanced in its SEF implementation plans ahead of the compliance date of 2 October 2013.”
