| LONDON, Sept 25
LONDON, Sept 25 The London Stock Exchange
L> and broker ICAP are expected to see off the
slowest summer for trading in years with only minor dents in
profits, thanks to increasingly diverse income sources.
London's two top trading firms will report on Wednesday that
trading for the five months to the end of August was down
heavily on last year, including a dramatic slump in August that
saw trading in some areas fall by half.
But analysts are not issuing profit warnings on these
companies. They see first-half profits down just a few percent,
citing changes made by both firms to diversify and break their
reliance on trading revenue.
The LSE bought index provider FTSE for 450 million pounds in
December and plans to go further when it completes the takeover
of clearing house LCH.Clearnet later this year.
ICAP has been pushing hard its post-trade services such as
Traiana, which enables banks to handle complex products more
effectively, a potentially valuable asset as regulators look to
reform trading of these instruments.
"Underlying profits at the LSE and ICAP will be down but
faster growing areas and cost control will have helped partially
offset the slump in trading through the summer," said Richard
Perrott, an analyst at Berenberg Bank.
The LSE, and exchange rivals such as NYSE Euronext
and Deutsche Boerse, take commission for matching
buyers and sellers of stocks and futures.
ICAP and its peers, such as Tullett Prebon and BGC
Partners, draw revenue from matching orders in assets
traded off exchange, like bonds, currency and swaps.
Summer months tend to see slower trading because many bank
staff takes annual leave, but this year was particularly bad due
to concerns over the outlook for the global economy.
LUCRATIVE NEW MARKET
European share trading in July and August was at its lowest
since mid-2009, down a third on last year, according to Thomson
Share trading at the LSE was estimated to be down a fifth
over the summer and suffered particularly in August when the
value of trades fell 47.7 percent, according to the exchange.
Similarly ICAP reported electronic trading down 27 percent
in July and 29 percent last month, while the broker's foreign
exchange business was especially slow, seeing trading levels
down 41 percent and 49 percent for the two months.
"Volumes in foreign exchange are very poor but they will
recover," said Gil Mandelzis, chief executive of ICAP's EBS, the
broker's foreign exchange unit.
Yet analysts don't see the recent dramatic slowdown in
trading having a huge impact on the firms' profitability for the
first half of their fiscal year when the companies report those
numbers in November.
A consensus of analysts said LSE profits for the six months
to the end of this month would be 120.8 million pounds ($195.6
million), 5 percent down on the same period last year, while
ICAP would clear 122.9 million pounds, 4 percent down.
The LSE and ICAP are keen to reposition themselves to tap
what looks to be a lucrative new market as policymakers are set
to force the $700 trillion over-the-counter market to start
using exchanges and clearing houses.
"We expect the exchange model of the future to be biased
towards less trading volume dependent business," said Nese
Guner, an exchange analyst at Citigroup.
"We think the near term regulatory opportunity is in
clearing over-the-counter derivatives and collateral
management," he said.