ICAP Revenue Declines as CEO Spencer Bets on Speed Traders

  • CEO is hopeful the Tullett deal will complete this summer
  • Renminbi is third most-traded on its foreign-exchange market

The chief executive officer of ICAP Plc, which reported a 7 percent drop in revenue from electronic markets, says high-frequency trading firms such as Citadel LLC and Virtu Financial Inc. will help to make up for reduced trading from banks.

“We are seeing a new breed of traders, non-bank trading institutions, most of them electronic, who over time, but not overnight, will fill the vacuum that’s been left by the retreating investment banks,” ICAP CEO Michael Spencer said in a conference call on Tuesday.

Interdealer brokers have struggled as regulations have obliged banks to reduce trading of fixed-income, currencies and commodities. Years of low interest rates have suppressed volatility, further dampening activity. Spencer is trying to transform his company by focusing on electronic markets and post-trade services.

ICAP is selling its voice-brokerage division and its name to Tullett Prebon Plc. Spencer said he hopes to complete the deal this summer.

He will announce a new name for the company soon. Spencer has promised a case of fine wine to whoever comes up with the best name, which he said has already been chosen. The runner-up will receive a magnum of wine.

Revenue from electronic markets dropped 7 percent in the final three months of 2015 from a year earlier. ICAP’s foreign-exchange platform EBS suffered from a 35 percent decline in average daily volumes in the period, and its Treasury-trading venue BrokerTec had an 11 percent slide in volumes.

ICAP’s shares retreated 6.5 percent to 414.1 pence at the close of trading in London, erasing their gains since the market operator first said it was in discussions with Tullett. ICAP has still outperformed the FTSE 100 Index, which has lost 12 percent since Nov. 5.

“Underlying trading remains very difficult as the traditional interdealer-broker client base continues its long process of deleveraging,” according to analysts at broker Liberum.

The company faces growing competition from other electronic-trading venues. Former ICAP executive David Rutter founded Treasury market LiquidityEdge LLClast year.

In currencies, Bats Global Markets Inc.’s Hotspot has announced a service called Link that lets customers choose their counterparties. It’s similar to ICAP’s EBS Direct, which has shown signs of stalling. ICAP said EBS Direct’s average daily volume was more than $20 billion in January, which compares with about $19 billion in October 2014.

The decline in trading is mostly explained by reduced volatility rather than from competition with other companies, Spencer said. The platform has focused on new foreign-exchange pairs, such as China’s renminbi, which is ICAP’s third-largest currency.

“What we have done is put a big effort into investing in new markets, particularly Asian currencies,” he said.

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