UPDATE 2-Broker ICAP sees role in benchmark setting - CEO

Wed Feb 5, 2014 8:43am EST

* CEO Spencer says broker can contribute to benchmarks

* No update on ISDAfix investigation

* ICAP still has no cause to believe involved in forex market fixing

* Revenue in three months to Dec. 31 down 6 pct y-o-y

* Full-year profit expectations remain unchanged

By Clare Hutchison

LONDON, Feb 5 (Reuters) - Brokerage ICAP Plc believes it still has a role to play in setting financial benchmarks, putting a positive spin on a regulatory shift that aims to make these benchmarks less susceptible to rigging after a series of market scandals.

The comments from the world's biggest interdealer broker, or middleman between banks in stock, bond, currency and derivative trades, come after it gave up its role in establishing ISDAfix, a benchmark for interest rate swaps that is widely used in the $630 trillion derivatives market and beyond.

ICAP, which lost its role in ISDAfix last month following a U.S. and UK investigation into the process, was separately fined $87 million by British and U.S. authorities over the involvement of its brokers in manipulating Libor benchmark interest rates.

Chief Executive Michael Spencer said ICAP could be involved in reformed benchmarks, which are intended to be based on actual traded prices rather than estimates from market participants.

"We've got some ideas that we think are very powerful," Spencer said on a conference call following a trading update, adding ICAP will release those ideas publicly at a later date.

"We are the major interest rate derivative broker globally. We handle a huge volume of transaction flow, so I think ICAP, and indeed other brokers, can contribute towards fixes that are based around real live transactions."

The former Conservative party treasurer said there had been no further developments in the ISDAfix investigation.

He also said there was no reason to amend the company's previous comments that there was no cause to believe any of its staff were linked to alleged manipulation of foreign exchange markets.

The scandal surrounding Libor, which measures rates at which banks lend to each other, exposed widespread attempts to manipulate survey-based benchmarks. Banks such as UBS, Barclays and RBS have paid billions in fines over Libor.

Separate probes into foreign exchange benchmarks are in progress.

LESS VULNERABLE

Until last month, ICAP collected banks' contributions for U.S. dollar-denominated ISDAfix. But the International Swaps and Derivatives Association (ISDA) handed ICAP's task to Thomson Reuters, parent of Reuters news, which was already the agent for all non-U.S. dollar ISDAfix rates, as part of a reform of the benchmark.

Under the changes, ISDAfix will be based on actual transactions rather than estimates from banks, making it less vulnerable to manipulation, according to new standards from a global group of securities regulators, the International Organization of Securities Commissions (IOSCO).

ICAP, which makes money by matching buyers and sellers of bonds, currencies and swaps, also reported a 6 percent drop in third-quarter revenue versus the previous year.

The brokerage said reduced activity by investment banks and "initially disruptive" new regulations around swaps trading had dented the performance of its voice broking division, in which traders negotiate deals by telephone and which accounts for more than two thirds of its total revenue.

The challenging conditions continued into the new year and could impact the final quarter, especially with more rules on swaps trading set to come into force on Feb. 15, ICAP said.

In electronic broking, however, tapering of the U.S. Federal Reserve's quantitative easing programme helped its BrokerTec fixed income trading platform, while its post-trade operations benefited from higher demand.

ICAP said its expectations for full-year profit remained unchanged. In September it said profit before tax would be marginally ahead of the 284 million pounds it made the prior year.

ICAP shares were up 0.6 percent to 314 pence at 1229 GMT, against a slightly higher FTSE 250 index of mid-range stocks.