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Broker snap: ICAP to launch new electronic platform
Thu, 09 Feb, 2012
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Broker snap: ICAP to launch new electronic platform
Wed, 1 Sep 2010, 11:54:00
Inter-dealer broker
ICAP
is set to launch a new electronic platform for euro interest rate swaps (IRS) on 6 September, which suggests to ICAP fan Panmure Gordon that dealers are warming to the faceless alternative to telephonic transactions. "Significantly, the initiative has the liquidity support of at least three major market participants, including Barcap, Deutsche and J.P. Morgan," notes Panmure analyst Vivek Raja. "We continue to believe that ICAP's higher margin Electronic broking and Post trade businesses, both scalable and with high barriers to entry, are poised to benefit from structural reforms," Raja added in a note that reiterated the broker's "buy" recommendation. "Given ICAP's access to liquidity, relationship with dealers and technological capabilities, we believe the company is uniquely placed to benefit from the transition to electronic in the IRS market," Raja continued. The analyst's conversation with representatives from ICAP indicates that dealers are less resistant to electronic trading of IRS than they were when i-swaps were launched in 2001. "We believe that dealer resistance to electronic transition of IRS in the past stemmed from their fear of losing pricing power given the associated improvements in price transparency of screen-based (as opposed to voice-brokered) trade execution. The increasing regulatory focus on standardisation and clearability of derivative contracts, together with an overarching drive to improve OTC [over the counter] market transparency, we expect are making it increasingly difficult for the dealers to resist the transition to electronic in IRS," Panmure Gordon said. ICAP has not provided guidance on revenue contribution or margin of electronic IRS trading but Panmure Gordon is not expecting a significant impact to current year estimates. The contribution to revenues from electronic rates trading is expected to become more meaningful from 2013 onwards which the broker thinks supports its expectation of ICAP's Electronic broking division delivering double-digit compound earnings growth from 2010-13.
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