Icap signs BrokerTec purchase agreement

UK inter-dealer broker Icap has reached an agreement to buy the electronic cash bond and repo trading business units of BrokerTec for up to £181 million. But the deal is still pending clearance by the US Department of Justice, which Icap expects will reach a decision mid-March.

The all-share deal will see Icap issue nearly 12 million new shares on completion. Up to 6.75 million additional shares will be issued subject to the revenue performance of BrokerTec and parts of Icap’s electronic trading community (ETC) online trading system 12 months after the deal is finally signed.

A number of leading banks, which developed BrokerTec as a consortium, will guarantee revenues to the system for a minimum of three years, under a complex agreement that should ensure banks do not pull liquidity from the trading platform.

BrokerTec currencty handles more than $160 million worth of transactions per day, principally US Treasuries and agencies, and European sovereign debt. The Icap deal does not include BrokerTec Futures Exchange or BrokerTec Clearing Company, although these companies are set to license technology from Icap in return for undisclosed fees.

Icap chief executive Michael Spencer – a firm believer in the hybrid world of voice-and-electronic broking – said Icap expects to see an upswing in voice-broking revenues at the company due to its increased access to liquidity in benchmark bonds.

The BrokerTec businesses Icap is close to acquiring had revenues of £73 million, generating profits of $14.9 million, for the nine months ending September 30 last year.

The Department of Justice launched an antitrust investigation into BrokerTec last year due to fears that the consortium-backed broker was anti-competitive. This is believed to have prompted its bank backers to seek a buyer for the platform.

Icap said the majority of BrokerTec’s shareholders – which include ABN Amro, Banco Santander Central, Barclays Capital, Citigroup Salomon Smith Barney, Credit Suisse First Boston, Deutsche Bank, Dresdner Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter and UBS Warburg – will provide a minimum commitment of $61.3 million in revenues per year for the next three years.

The BrokerTec system was created using technology developed by Swedish company, OM.