Volatility in financial markets bouyed trading both at the London Stock Exchange, which acquired Borsa Italiana last October, and ICAP, the inter dealer broker. Both said on Thursday that the amount of business being done through them had risen sharply in the last three months of 2007, and was continuing at high levels currently.
Each said transaction levels had been breaking records. The LSE said trading on its SETS electronic order book was this month running at a daily average of over 900,000 bargains, while the total value of value of cash equities it had traded in the last three months of 2007 had been £0.8 trillion.
ICAP said its spot foreign exchange trading reached an average daily volume of $200bn in the last quarter of 2007, while electronic trading of fixed income products hit a record for average daily volume of $610bn.
ICAP said the higher activity would result in its profits for the year to March exceeding analysts expectations. The consensus forecast for profits before tax, amortisation and exceptional items was £307m which compared with £252m recorded in the previous financial year.
Michael Spencer, chief executive of ICAP said: “Steeper yield curves, volatility in foreign exchange and continuing activity in the credit markets suggest that this period of increased activity may continue for some time.”
ICAP’s shares on Thursday morning were up 39p, an increase of 6.7 per cent, to 623p.
At the LSE average daily equity bargains rose 56 per cent in the last three months of 2007, to 916,000, with the number of bargains executed over SETS up 89 per cent to 645,000.
The only damper on the LSE’s performance was a fall in the number of companies listing on the London and Milan exchanges, which led to a slight drop in revenue from that business.
Group revenues rose 87 per cent to £167.9m, including Borsa Italiana for the first time, in the third quarter of the group’s financial year. On an underlying basis revenues rose 15 per cent. That takes revenues for the nine months to £371m, up 47 per cent or 19 per cent on an underlying basis.
The main push behind the increase in revenues came from trading, where third quarter revenues reached £76.9m, up 22 per cent on an underlying basis. The LSE was particularly successful in persuading customers to trade through SETS, where they can receive discounts for higher volumes. The 89 per cent rise in the number of bargains was accompanied by a reduction in the yield per bargain from £1.32 to 86p.
New issues fell as companies deferred IPOs in the face of volatile markets in the period. In London the number of new issues fell from 183 to 101, quarter on quarter. Even so, the LSE said the number of international IPOs at 28, down from 39, still exceeded the number achieved by its arch rivals NYSE-Euronext and Nasdaq. In Italy, there were 7 new equity issues compared to 9.
Revenues from the division fell 3 per cent on a pro forma basis, to £25.2m, which the LSE called a resilient performance.
The LSE also saw growth in revenues from its post trade operations and its information business, with the number of terminals taking real time data reaching 133,000 at the end of December, a 20,000 increase on the year.
Clara Furse, chief executive, said the LSE was making good progress on integrating Borsa Italiana, and expected a “good outcome” for the year. The group hinted that second half costs would be higher, in part reflecting “performance related and share based payments.”
LSE’s share price on Thursday increased by 82p to £16.60, up 5.2 per cent.
ICAP said revenues for the first nine months of its financial year were “significantly ahead” thanks to the higher volatility in its markets which include trading in foreign exchange, interest rate, energy and credit instruments. Mr Spencer said that after the “normal slowdown in December” trading in January had returned to higher levels of activity.
ICAP said aside from the long-term trend of growth in its markets, it was benefitting from expanding into newer areas. In December it completed the acquisition of Traiana for $238m, expanding its post-trade processing business, while it has also arranged the first catastrophe swap transaction through its new joint venture with Jardine Lloyd Thompson.
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