Fidessa aims to take advantage of US swaps trading reform

Fidessa is looking to exploit impending changes to US swaps trading as the UK trading technology company looks to its fast-growing derivatives business to underpin growth.

The group is talking to customers about providing tools for trading the over-the-counter swaps market as it looks to reduce its reliance on the fortunes of share dealings of banks and investors.

Chris Aspinwall, chief executive, said on Monday he expected strong growth and continued investment in the coming year at Fidessa’s derivatives unit. Boosted by three large deals, turnover at the business more than doubled in the year to December 31, becoming nearly 5 per cent of group revenues.

Many of Fidessa’s bank and fund manager customers failed, merged or pressed for fee cuts in the wake of the financial crisis. In response, Fidessa has pushed into new markets like derivatives, Asia and outsourced hosting of trading.

Mr Aspinwall said many of its customers were seeing the first uptick in business in five years, with “first real improvement since the start of the financial crisis”.

US rules coming into effect this week have mandated that swaps, the most popular type of over-the-counter derivative, be traded on electronic exchanges. The majority of the market is currently traded on the telephone.

More than 20 venues have sprung up in the US aiming to exploit the changes. Many expect the swaps market to adopt trading practices in the equities market.

They include so-called sponsored access, whereby a clearing broker allows an investor to directly buy or sell a swap on a venue. Other market participants are considering a tool that will “aggregate” all quotes for a particular product, so investors do not miss the best price.

“The sponsored access model and the aggregated tools will play a part,” said Mr Aspinwall. “We’re working with people in the market to work out the best route.”

Analysts said Fidessa was implying underlying revenue growth of around 5 per cent in 2014 from its comments.

“Given the improving backdrop, we expect management to ramp up investment particularly in derivatives and as a result we are lowering profit forecasts around 5 per cent,” said David Toms, an analyst at Numis Securities. He added that profits would likely remain flat amid the investment and continued pressure on prices.

For the year to December 31, revenue was flat at £279m while pre-tax profit rose 3 per cent to £43.1m. The group paid out another special dividend of 45p per share, while its final dividend was flat at 37p per share.

At the height of the market boom in 2007, Fidessa was recording annual revenue and profit increases of around 20 per cent.