Icap Q1 revenue drops in subdued market

Source: Icap

ICAP plc (IAP.L), the world's premier interdealer broker, is making this Interim Management Statement in relation to the period from 1 April 2011 to 30 June 2011 and the outlook for ICAP's financial year ending 31 March 2012. It will be delivered to shareholders attending ICAP's Annual General Meeting today.

At the beginning of the first quarter revenue was restrained by a larger number of UK public holidays than usual and a tough comparator due to the abnormally high level of activity around the 'flash crash' of May 2010. Since the start of June 2011 we have seen the return of improved market activity and growth. As a result Group revenue in the quarter ended 30 June 2011 was in line with our internal expectations and fell by 4% compared with the same period the previous year.

Commenting on the first quarter, Michael Spencer, Chief Executive of ICAP, said "ICAP has made a good start to the year despite quieter and more cautious markets in April and May. We will continue to concentrate on growing our business organically, work to reduce our costs and push forward with our drive to expand our successful electronic Interest Rate Swap (IRS) platform into other currencies. We are pressing ahead with our plans to launch dollar IRS later this year as well as other electronic broking and post trade initiatives.

I am pleased with the progress ICAP has made over the past year. We have maintained our focus and continued to invest in our products, technology and people to meet the evolving needs of our clients and financial market regulators. Today our portfolio, across our electronic, voice and post trade businesses, is better balanced in terms of the range of our businesses and the generation of our profits. The strong market positions we have built underpin our long term growth.

For the remainder of the year we anticipate an uptick in trading as central banks' inflation and interest rate strategies start to diverge. We remain comfortable with the current range of analysts' forecasts for ICAP's profit for the full year."

Recent developments
In electronic broking total average daily volumes for the quarter to the end of June on the EBS and BrokerTec platforms reached US$878 billion, an increase of 10% year on year. In fixed income products total average daily volume volumes on the BrokerTec platform were $712 billion, an increase of 14% on the previous year. European repo volumes reached $308 billion, up 15% year on year. US Treasury electronic broking volumes decreased 1% year on year to $144 billion, and US repo volumes were up 23% year on year to $259 billion. For the quarter ended 30 June 2010, average daily volumes on EBS decreased 3% year on year to $166 billion.

Since the launch of our electronic platform for trading euro IRS with market maker support we have transacted over €510 billion in volume involving more than 6,800 trades representing over 23% of our Euro IRS activity by volume. In both May and June over 30% of our euro IRS activity was transacted on the platform.

The core voice broking business was driven by positive results in many of our widely diversified markets, although there were lower activity levels in credit. In Europe, interest rate options and structured products performed well and in the Americas commodities, government bonds and FX all delivered a strong performance.

Post Trade Risk and Information has made a solid start to the financial year with revenue growth back to levels we would expect from these businesses. In the first three months of the financial year TriOptima eliminated interest rate swaps with a notional value of $10 trillion and credit default swaps of $1 trillion using the triReduce portfolio compression service.

Traiana's Harmony network is now processing on average over $800 billion of foreign exchange transactions daily compared to $475 billion in June 2010. Traiana announced in June that it has partnered with leading foreign exchange prime brokers and leading FX platforms to launch an industry-wide initiative to centrally monitor and manage foreign exchange ECN trading activity and trading limits globally. By connecting prime brokers and ECNs in real-time, the service will provide the FX industry with the control and real-time risk management capabilities to manage risks from algorithmic and high frequency trading.

Financial markets reform
The regulatory push towards electronic or hybrid trading of derivatives and central clearing continue to be positive drivers for our business. We believe that our significant and long-standing investment in technology and electronic trading give us a competitive advantage in this developing environment. As a leading provider of OTC market infrastructure, ICAP is in a very strong position to work with market participants and lead new initiatives to address regulatory concerns.

In the US, the Dodd-Frank Financial Reform Bill proposes that OTC swaps are traded on a Swap Execution Facility ("SEF"), though the definition of a SEF has not yet been finalised and the introduction of new regulation delayed, ICAP believes that its platforms will be SEF compliant. In Europe, the European Market Infrastructure Regulations ("EMIR") which are likely to come into force by the end of 2012 and MIFID, though delayed, are expected to confirm the EU's commitment to open, efficient and resilient markets.

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