PLUS deal positive for ICAP’s OTC strategy
broker ICAP’s purchase of the stock exchange assets of UK-based PLUS Markets Group
will serve as a hedge against impending OTC derivatives reform.
Under the terms
of the acquisition, ICAP will buy PLUS-SX, the group’s wholly-owned cash
equities recognised investment exchange (RIE) on a cash-free, debt-free basis
for a nominal cash amount of £1.
Sources have told
theTRADEnews.com that a number of large interdealer brokers were eyeing
PLUS-SX, but ICAP was the only eventual bidder.
ICAP said it
would use the RIE licence – a UK-only designation managed by the Financial
Services Authority – to offer new products and solutions in listed derivatives
and would also continue to support PLUS’s UK junior listings market.
In addition to
PLUS, the London Stock Exchange, London Metal Exchange and derivatives markets
ICE Futures Europe and NYSE Liffe are the only other firms that have an RIE. PLUS
has annual revenues of around £3 million but is loss-making, primarily because
of an adverse trading environment for SMEs since the financial crisis.
broker revenues are under threat from the impending of introduction of new
rules for swaps markets that are set to come in at the end of this year. In
Europe, central clearing and data collection for OTC derivatives has been
enacted through the European market infrastructure directive, while new trading
platforms for swaps will by mandated via MiFID II.
typically hedge or offload their OTC derivatives exposures bilaterally via
interdealer brokers like ICAP will soon by required to trade many of these
products on exchange and clear them through central counterparties. The PLUS
acquisition gives ICAP another tool it can use to diversify revenues following
the new swaps trading rules.
“ICAP probably looked at
PLUS earlier this year and decided not to make a bid, but have now taken
the opportunity to snap it up at a token price,” said Richard Perrott, exchange analyst at
private German bank Berenberg.
broker already operates 10 multilateral trading facilities (MTFs) covering
equities, FX, fixed income and US treasuries among others. But the RIE licence
will help ICAP serve a broader range of clients.
The RIE licence
is the highest form of regulation for venue operators in the UK and can act as
an umbrella for other services. ICAP could use the status to consolidate its
MTF licences under a single regime and establish information services based on
the data it already collects via its other platforms.
The licence could
also attract exchange-traded fund issuers that prefer to list on exchange and
help to capture new clients that are only allowed to trade on markets that have
Given the greater
level of regulatory scrutiny given to RIE licence holders, Perrott believes the
acquisition of the platform will facilitate the approval process for further
trading venues or products by ICAP.
“A firm does not want to be
held up by regulatory delays when trying to launch or list new products as this
could have a substantial commercial impact,” he said.
The remaining two
parts of PLUS’ business, its DX derivatives market and TS trading solutions division
established towards the end of last year with former Chi-X Europe COO Hirander
Misra, are still in play.
claimed that Misra is gearing up to bid for the PLUS-TS subsidiary with a number
of members of PLUS Markets’ technology team, although Misra himself declined to
There are further
suggestions that Vijay Angelo, a consultant hired by PLUS last year to help
develop its derivatives market, is preparing a bid for PLUS-DX with a syndicate
that may include the largest players in the interest rate swap market. The
market currently offers trading in a contract that replicates US dollar interest rate swap curves via an
exchange-traded product based on the FTSE medium-term interest rate swap index
series. However, despite receiving approval last July, PLUS-DX is yet to see a
trade on its market. A bid for PLUS-DX placed in December last year
was rejected by the firm.