Interdealer broker Icap is moving to make the majority of its business available over automated platforms, as it reports back on a year of record e-trading volumes and growing market appetite for electronic broking services.
Icap reported a 35% increase in turnover in electronic broking to £83.8 million in 2004/5, as volumes in the final quarter reached record levels of $56 trillion, up 48% on the same period in 2004. The operating profit margin improved to 29% from eight per cent in the previous year.
There remains plenty of room for growth, with electronic broking currently responsible for just 10% of sales. With continuing downward pressure on voice broking margins, Icap is keen to switch more business over to cheaper electronic platforms.
In the key US treasury market, electronic volume increased by 59% over the previous year to reach US$12 trillion in Q4, boosted by a stellar performance from BrokerTec. Icap estimates that its combined voice and electronic market share overall in US treasury products exceeded 60% for the quarter, a substantial increase from 48% in the same period in 2004.
Michael Spencer, Icap CEO, emphasises the importance of first mover advantage in the electronic bond markets. "Extending electronic broking into new markets like European interest rate derivatives is a long-term investment," he says. "Icap believes that the time has come for the euro interest rate swap market to go electronic and as customer demand grows Icap wants to lead the way."
Icap claims to have 21 banks live and 18 in the pipeline on its recently launched i-swaps platform for trading short-term interest rate swaps. The broker says that in the autumn it will begin work on developing a direct link to the London Clearing House's Swapclear facility for novation of longer-dated swap trades.
The firms is also reporting positive feedback from its 17 bank customers to the latest version of its credit derivatives trading facility on BrokerTec. Icap says it plans to extend the system further in the near future to offer single name credit derivatives together with corporate bonds on the same screens for transaction.