Interdealer broker ICAP’s nascent equities execution business, which launched 18 months ago, is aiming to pull itself out of the boutique space and become the world’s leading agency broker, according to Daryl Bowden, the unit’s co-CEO of Europe and Asia.
Unlike most of ICAP’s business, which is focused largely on serving the sell-side, the equities division provides execution and research directly to the buy-side, pitting it against UK-based boutiques such as Execution and Redburn Partners, but also global agency brokers such as ITG and Instinet.
“Globally, there is an opportunity to occupy the ground that was populated by mid-tier banks such as ABN Amro, Dresdner Kleinwort and Bear Stearns,” Bowden told theTRADEnews.com. “We definitely want to set ourselves apart from the boutiques, but we are not going to compete with the big banks nor offer the same kinds of services, such as capital commitment and banking.”
Over the past 18 months, ICAP’s equities unit has hired 212 people, 150 of which have joined the Europe and Asia divisions. A particular coup was poaching the portfolio trading team from investment bank UBS, led by Phillip Hodey.
Around 24 of the new hires are analysts, underscoring ICAP’s strategy to provide research in tandem with trade execution to the buy-side.
“Full-service equities agency broking is quite a simple business that is generally executed fairly poorly and over-complicated,” asserted Bowden. “Clients want good ideas that make them money and they want to maintain the alpha in those ideas through the execution process.”
ICAP’s equities division currently operates in the UK, Germany, Singapore, Australia, Hong Kong, Japan the US and Brazil. It has plans to add sales teams to European markets it does not currently cover, which may include France, Italy and the Nordic countries. The firm also intends to establish a US team selling European products to US-domiciled funds early next year. ICAP is half-way through building out its existing Asian locations for equities: research is available in Japan but not yet in the wider region. The firm is also looking at opportunities to expand in Asia’s ID markets – India, Korea and Taiwan.
ICAP’s equities brokerage has been able to expand rapidly thanks to its parent company’s standing in the market, according to Bowden. “We are fortunate as we have got a FTSE 100 balance sheet and infrastructure behind us, while most of the smaller boutiques have to grow using internally generated cash flow,” he said.
Glenn Poulter, also co-CEO of Europe and Asia equities at the firm, added, “We have immediately been categorised as a boutique, but because ICAP is in 32 countries, we have been able to establish the ICAP equities business in eight countries in 18 months.”
While ICAP will provide a range of trade execution technology to the buy-side – it launched its BlockCross non-displayed trading platform in October, is in the process of developing algorithms and direct market access and has created a portfolio trading application “practically from scratch” – it is keen not to be viewed solely as an electronic execution-focused technology provider.
“Offering electronic trading alone is a race to zero, and the next battle is going to be value and service provision,” said Bowden. “Not many people are focused on that; everyone seems focused on how much business they can get at one or two basis points, which we think is dangerous..”
He added, “Other businesses have aimed at individual parts of the unbundled commission pot. We want to make sure we have got a business or business application that sits under each part of the pot.”
One of ICAP’s non-execution technologies is Relevance: a tool that distributes tailored research and information notes to buy-side desks based on their holdings. The service currently distributes research notes to more than 1,500 clients. ICAP argues that the service relieves portfolio management teams from much of the effort required compiling relevant market information for morning meetings.
Competition for share of the buy-side wallet has intensified throughout 2009 with many agency brokers and second-tier banks seizing their chance while bulge bracket firms attempt to put the impact of the financial crisis behind them. According to Poulter, increased competition has not yet translated into added value.
“Many of the senior people we speak to on buy-side desks say sell-side service levels have declined significantly over the last five years,” said Poulter. “Liquidity is still key but the intraday information that is going to help them look smart in front of their fund manager has simply disappeared from the market. We want to get back to old-style broking but with a technology-enhanced service.”