Icap FX volumes surged to hit $200bn on Brexit day

In a trading statement covering the three months to the end of June, published on July 13, Icap‘s chief executive Michael Spencer said the road back to “more normal” market conditions looked “more uncertain” in the wake of the UK’s June 23 vote to leave the EU.

Icap handled more than $ 200 billion of foreign exchange volume on its EBS platform on June 24 in the wake of the result, which Spencer described as a “tremendous shock” to global financial markets. The average daily volume on the FX platform was $ 83 billion over the period, according to the statement.

Icap agreed in November 2015 to sell its hybrid voice broking and information business to one-time rival Tullett Prebon. The deal is expected to complete later in 2016 and Icap will rebrand as Nex Group, a venue for electronic transactions in over-the-counter derivatives products and post-trade services.

Speaking to journalists on a conference call, Spencer said he doesn’t envisage major changes to the company’s structure to respond to any consequences of the Brexit vote. Icap has 63 offices around the world, with its London headquarters being the only one it has in the UK. Its other main offices are in New York, Stockholm, Tel Aviv and Singapore.

“It’s important to be close to your clients,” Spencer said on the call. Icap, which counts the likes of investment banks, money managers and high-frequency traders among its main customers, could transfer sales staff to Paris or Frankfurt in the event trading business moves from London, Spencer said. Alternatively, sales staff could commute from London, he said.

The company’s reconfiguration should be straightforward, Spencer said, as it “doesn’t require big upfront planning or infrastructure changes”.

Brexit does raise “ancillary” questions about the extent to which the City of London will be affected as a global financial centre, Spencer said. It also has consequences for macroeconomic policy.

Interdealer brokers have suffered in the wake of the financial crisis, as their investment banking clients decreased leverage in response to new regulation and central banks imposed historically low interest rates to help their economies recover. Those pressures played a part in driving the deal with Tullett.

The US Federal Reserve’s December 2015 move to increase interest rates from near-zero had signaled the start of a return to normal, but the outlook is not as clear now that the UK looks set to leave the EU.

“Prior to the UK referendum, we were looking towards a long and slow journey on the road to more normal market conditions following the decision by the Fed to raise interest rates back in December,” Spencer said. “This journey looks more uncertain now although the subsequent decline in sterling in the FX markets does provide us with a significant windfall benefit.”

In its trading statement, which covered its fiscal first quarter, Icap said group revenues from continuing operations increased 7% on a reported basis, compared with the same period last year. Revenues from its electronic markets unit dipped 3% but rose 12% at its post-trade business.

Spencer said: “We have made a good start to the year and remain cautiously confident looking ahead despite a more uncertain macroeconomic outlook for the UK and the global economy since the Brexit vote in the UK on 23 June.”

UPDATE: This story was updated with comments from Michael Spencer on the July 13 call

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