London, 10 July 2013 - ICAP plc (IAP.L), a leading markets operator and provider of post trade risk mitigation and information services, is issuing this Interim Management Statement in relation to the period from 1 April 2013 to 10 July 2013 and the outlook for ICAP’s financial year ending 31 March 2014. It will be delivered to shareholders attending ICAP’s Annual General Meeting today.
The encouraging start to the financial year has continued throughout the quarter reflecting a number of positive developments. The prospect of a tapering of quantitative easing in the United States has stimulated volatility in the US Treasuries market which resulted in a spike in activity on the BrokerTec platform in May and June. The publication of the US SEF rules has reduced regulatory uncertainty and ICAP remains on track to launch its SEF in readiness for their implementation. Notwithstanding these positive developments, trading conditions remain challenging for a number of ICAP’s businesses. Specifically, trading in commodities has contracted following the decision by a number of investment banks to cut activity in this area. The current low interest rate environment has constrained demand for the risk mitigation services provided by Reset and ReMatch. In addition, Information revenue has been impacted by the decision to stop certain data sales following a planned change to EBS’s product offering last year.
Given this mixed performance across ICAP’s businesses, Group revenue for the quarter was 2% ahead of the same period last year and management’s current expectations for the full year remain unchanged.
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 stabilised 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.
“The CFTC’s publication of the SEF rules in the US also provided some long-awaited clarity about the future of our markets and reinforced our belief that we have positioned ICAP well to adapt to the new regulatory environment and serve our customers effectively. It remains far too early to say that we are seeing a sustained upturn, but current conditions give us confidence that we can deliver on expectations for the year.”
The performance of the Post Trade Risk and Information business benefitted from further growth in Traiana during the first quarter, as it made market share gains, resulting in the Harmony network processing an increasing number of FX transactions. This positive performance was largely offset by Reset and ReMatch which has continued to be impacted by both historically low interest rates and Libor volatility. A change to the interest rate environment should increase basis risk in Reset and ReMatch’s customer’s portfolios and therefore increase demand for their services. As mentioned earlier, Information revenue has been impacted by the decision to stop certain data sales following a planned change to EBS’s product offering last year.
Total average daily volumes on the BrokerTec platform were $659 billion, for the quarter, up 13% on the previous year. After a slow start in April, BrokerTec benefitted from the debate over the future of quantitative easing in the US which had a significant positive impact on Treasury volumes in May and June leading to a 51% increase in average daily volumes in the quarter, compared to the previous year. The uplift in revenue was less pronounced than the growth in volumes reflecting the volume discounted tariff structure.
Average daily volumes on EBS were $128 billion, for the quarter, up 1% on the previous year. Changes to Japanese monetary policy and an increased trading of yen crosses, drove yen activity on EBS and helped support overall volume on the platform. The successful roll out and development of EBS Direct has continued since the beta launch in May. With 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. Demand for EBS Direct continues to grow with over 275 customers now signed up.
During the quarter, activity levels in Global Broking varied across different products with the strong performance in financial futures and options driven by the recent volatility created by changes in monetary policy and the on-boarding of new customers. ICAP’s global equities derivative business has performed well during the period reflecting the restructuring of ICAP’s US equity derivatives business and increased volatility in the global equities markets. Activity in credit continued to decline, and in addition, market volumes in commodity products suffered following the decision by a number of investment banks to cut activity in this area.
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.
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Investors & Analysts Conference Call
This will be hosted by Michael Spencer at 08:30am on Wednesday 10 July 2013:
Dial in number: +44 (0)20 3003 2666
Access Code: ICAP
A recording of this call will be available at www.icap.com
ICAP is a leading markets operator and provider of post trade risk mitigation and information services. The Group matches buyers and sellers in the wholesale markets in interest rates, credit, commodities, FX, emerging markets and equity derivatives through voice and electronic networks. Through our post trade risk and information services we help our customers manage and mitigate risks in their portfolios. For more information go to www.icap.com