ICAP results, and strategy for Electronic Markets and Post Trade Services


ICAP today released first half results, confirmed the sale of the Global Broking Business (IGBB) to Tullett Prebon, and as part of their investor presentation, provided more details on the NewCo that will comprise Electronic Broking and PostTrade Services group.

In terms of result, group revenue fell 4% to £595m, although after stripping out ICBB, would show 4% rise, whilst revenues at TriOptima the post trade division rose 35%.

ICAP reported they had invested £39m in new product initiatives, which is up 34% on prev period, and Electronic Markets and Post Trade Risk and Information generated 77% of the Group’s trading operating profit (see previous post on margins).

They also provided more details on the proposed transformational transaction with Tullett Prebon to combine IGBB and create a focused electronic and post trade services Group.

The accompanying investor presentation provides good insight into the NewCo, which will be:

  • NewCo- a focused electronic and post trade services group
    • Leading portfolio at the heart of financial market infrastructure
    • Drive expansion of addressable market through continuing product development and broadening of geographic reach and customer base
    • Offers solutions that are integrated into the workflow of our customers
    • Increasing level of recurring subscription revenue
    • Benefiting from regulatory-driven increased demand for post trade / risk mitigation solutions and electronic trading infrastructure
    • Management has strong track record of innovation
  • Leading portfolio at the heart of financial market infrastructure

    • BrokerTec: Electronic trading platform in US Treasuries and repos
    • EBS: Electronic spot FX trading platform in EUR/USD, USD/JPY, Asian NDFs and CNH
    • Traiana: Post trade FX processing
    • Reset: Basis risk management
    • Euclid Opportunities: Leading portfolio of early stage fin tech assets
  • Strong history of electronic market innovation.

Strong track record of innovation

 

  • EBS Innovation over the past three years has a proven track record of driving growth and significantly expanding the addressable market
    • EM currencies (CNH and Asian NDF’s) on EBS existing exchange-like central order book – underpinned by secular growth of activity levels in EM currencies, increased migration of activity from voice broking to electronic platforms and market share gains
    • Disclosed liquidity offering in spot FX (EBS Direct) – leveraged into growing penetration of electronic trading in the bank-to-customer segment. Key competitive advantage is EBS’s wide existing customer connectivity across regional banks
    • eFix Matching – strong market interest driven by the need for a global solution to execute benchmarks in an electronic and transparent fashion
  • Building from EBS’s proven track record in innovation, EBS has a significant opportunity to expand its strong position in the broader FX market
    • FX forwards / swaps – to be launched on EBS Direct this year
    • Corporates – currently in customer trials, leveraging MyTreasury corporate relationships
    • Asset managers – recent Molten Markets acquisition will deepen relationships with asset managers
  •  BrokerTec’s recent merger with EBS provides an opportunity to leverage EBS’s experience in innovation and driving growth across both businesses
  • Operational synergies associated with this combination
    • Sales – EBS sales force trained to sell BrokerTec products
    • Technology – BrokerTec Direct leverages footprint of BrokerTec Market and platform architecture of EBS Direct
    • Engineering / other – operational cost savings

Post Trade Risk Information – Ecosystem

  • ICAP’s PostTrade services has built an impressive ecosystem around core services
    • Traiana: Simplifies and automates cross-asset transaction workflow and distribution for messaging, matching, credit, risk and reporting
    • TriOptima: Minimises credit and operational risk, reduces costs and improves counterparty exposure management through a suite of portfolio compression, reconciliation, margining and valuation tools
    • Reset: Reduces basis risk within portfolios from fixings or exposure imbalances in numerous markets including interest rate, foreign exchange and inflation products
    • IIS: Provider of transaction, market, customer focused data and analytics
    • Euclid Opportunities: Identifies and provides investment to emerging financial technology firms that drive efficiency, transparency and scale across the post trade life cycle

Post Trade Servcies

Interestingly, one of ICAP’s Euclid investments, Abide Financial, a market leading global transaction reporting specialist, has applied to become a Trade Repository under EMIR (European Market Infrastructure Regulation) – see latest post on Abide Financial.

Full ICAP investor presentation here

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