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Foreign Exchange

CHF and JPY interventions hit Icap revenues

Icap, the London-based interdealer broker, has seen quarterly group revenues drop by 7% year-on-year partly due to lower volumes on its EBS platform driven by central bank intervention in the Swiss franc and the yen.

In an interim management statement released on Wednesday, the broker blamed continued uncertainty in the eurozone and constraints on market liquidity, together with customers reducing risk before the year-end, for the reduction in activity for the quarter ending December 31. It added that the results were skewed by heightened activity in the comparison period after the Federal Reserve’s decision to engage in a second round of quantitative easing in the second half of 2010.

Icap said that average trading volumes on its EBS electronic FX platform decreased 6% year-on-year to $136 billion over the quarter, thanks in part to lower volumes in some of its most popular currency pairs – the yen and the Swiss franc – resulting from central bank intervention policies in Japan and Switzerland.

The broker added the lack of volatility in the yen and franc had resulted in volumes on its electronic platform remaining subdued in January, with activity, while up on December, down 19% compared with January 2011.

Icap, said there were grounds for cautious optimism, however, given indications of improvement in the US economy, and activity from European governments and institutions, that has improved liquidity conditions. It said as certainty and confidence returned to the market, so would its customers’ willingness to transact.

“Like everyone else, we saw a significant reduction in risk appetite in November and December,” says Michael Spencer, group chief executive officer at Icap. “In January, we saw encouraging signs of activity starting to return, albeit cautiously in some markets.”

He added that the company’s electronic fixed-income platform BrokerTec would benefit from an upgrade in March, leading to improved processing speed and expanded capacity.

“The wholesale markets play a vital part in the efficient flow of capital around the global economy and Icap will continue to play a leading role in helping our customers manage and mitigate their risks,” says Spencer.

Meanwhile, Icap saw strong revenue growth in its post-trade division, led by Traiana, operator of the Harmony FX network. In December, Harmony processed an average of 1.1 million transactions per day, up 55% on the year.

In a research report released on Wednesday, Oriel Securities said the tough quarter was expected given the quieter and more uncertain market conditions.

Oriel reiterated its buy recommendation on Icap shares, which have sold off aggressively in recent weeks, saying they were oversold, having dropped by 19% during the past three months.

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