ICAP plans new offensive in US Treasuries trading

ICAP is developing a new venue for hedge funds and corporations to buy and sell US government bonds, that propels the brokerage into direct competition with rivals such as Bloomberg.

The UK interdealer broker is developing an offshoot of its BrokerTec fixed income trading platform that would allow institutional investors and hedge funds to trade directly with each other, according to two people familiar with the plans.

The venue, called BrokerTec Direct, represents a big shift at ICAP, which has historically focused on acting as a middle man in derivative, currency and bond trades between big investment banks and dealers. That focus has allowed its BrokerTec venue to accrue a 60 per cent share of trading in US Treasuries, the world's largest and most liquid government bond market.

Icap's initiative also reflects an effort at maintaining its market share amid growing encroachment into the Treasury markets from electronic market makers.

For many years Treasury dealers have kept separate "dealer to client" and "dealer to dealer" markets and been happy for high-frequency traders to use the interdealer market, arguing they provide liquidity.

However, some interdealer brokers are becoming concerned that some larger electronic market makers are pushing into both markets, potentially taking customers.

ICAP's main customers have also been hit by tough new global legislation such as the US Dodd-Frank act and Basel III, which has raised their capital costs, limiting their ability to provide liquidity in the market.

Creating a new venue - which would not be commingled with the existing BrokerTec platform - mean ICAP would compete more fiercely for a broader range of customers with Bloomberg and Tradeweb, a venture owned by Thomson Reuters and a large group of dealers.

The new venue, in which both parties disclose the identity of their trades, will be based on EBS Direct, an offshoot of ICAP's currency trading venue, the people said.

Michael Spencer, ICAP group chief executive, has described the late 2013 debut of EBS as "the single most successful launch in my career at ICAP to date". Volume has exceeded more than $30bn a day on the platform, and Mr Spencer has predicted it would reach volumes of $200bn.

Some early customers have been signed to BrokerTec Direct from its existing user base, and ICAP aims to have the first trades conducted on the platform towards the end of the year, the people said.

ICAP will later this year also replace the technology for BrokerTec, supplied by Nasdaq, which owns its chief rival eSpeed, with its own custom-built technology. BrokerTec was last year merged with EBS, with the combined entity headed by Gil Mandelzis, chief executive of EBS.

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