Fitch: Inter-Dealer Brokers Face Regulatory Challenges with Some Longer-Term Opportunities

  Fitch: Inter-Dealer Brokers Face Regulatory Challenges with Some Longer-Term
  Opportunities

Business Wire

NEW YORK -- October 2, 2013

Inter-dealer brokers (IDBs) face significant regulatory challenges with the
potential for disruption in established revenue streams, according to a new
Fitch Ratings report. However, there are positive opportunities for some
industry players over the longer term.

Financial regulators in the U.S. and Europe have pushed for greater
standardization of over-the-counter (OTC) derivative contracts, supporting
electronic price discovery, trade execution and reporting, and mandating
central counterparty (CCP) clearing to reduce systemic risk.

IDBs are facing tougher competitive challenges as much of their core OTC
business migrates toward exchanges and CCP platforms. However, Fitch believes
that larger IDBs that already have electronic trading capabilities and
liquidity could ultimately benefit at the expense of smaller less-capitalized
IDBs. Greater use of CCPs will mean that some less liquid products will see
increased trading volumes and liquidity, albeit at lower margins/commissions.
Revenue stability will depend on the ability of volume growth to compensate
for lower fees.

Fitch recently downgraded three IDBs' ratings, partly reflecting the proposed
regulatory changes. The changes could potentially shrink IDBs' revenue bases
due to increased competition in trading OTC products, lower
margins/commissions for electronic trading platforms relative to voice/hybrid
platforms and increased costs related to trade reporting, compliance, capital
and risk management.

Fitch currently rates four interdealer brokers: ICAP plc ('BBB/F3', Outlook
Stable), Tullett Prebon plc ('BBB-', Outlook Stable), BGC Partners Inc.
('BBB-/F3', Outlook Stable) and GFI Group Inc. ('BB/B', Outlook Negative).

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Inter-Dealer Brokers: Challenges and
Opportunities from New Regulations

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719682

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.

Contact:

Fitch Ratings, Inc.
Mohak Rao, CFA, +1-212-908-0559
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
 
Press spacebar to pause and continue. Press esc to stop.