Reuters readies for swaps broking foray

UK electronic information and dealing systems provider, Reuters, appears to be positioning itself for a foray into the electronic broking of interest rate swaps. The company has reached an agreement in principle to take control of the rate swaps platform developed by New York-based Icor Brokerage, a company it bought half of in September last year.

Reuters first signalled its interest in becoming an electronic swaps broker in early 2001, when it attempted to gain control of Charlotte-based Blackbird, a company in which it inherited an 11.8% stake when it purchased Teknekron Software. But after an acrimonious power struggle between inter-dealer broker Icap, Reuters and Blackbird directors and founders, it sold its stake for a nominal fee in September, as did Icap.

But Reuters, which has a strong electronic cash and forwards foreign exchange broking business, is still keen to expand its electronic broking services. Icor president Neil Chriss confirmed the swaps platform deal with Reuters. “We did a pretty big deal with Reuters involving them effectively buying our swaps business in exchange for a revenue share,” said Chriss. “They are going to take some of our employees,” he added.

But Reuters' managing director of business development, Philip Wood, who deals with Icor on ‘an arms’ length’ basis, said Reuters was still reviewing its options. “We are committed to the Icor venture and committed to maximising the use of the platform,” Wood said. “The tactics of how we do that will depend on market assessments at the time. Just because something [the interest rate swaps platform] is ready to roll out it doesn’t mean you roll it out, because you want to get your market timing right and do it in the optimal fashion. Clearly, when, or if, we want to do that, we will be making appropriate announcements at that time, but we are not really quite ready there yet,” Wood added.

Mark Robson, managing director of treasury broking services at Reuters, who sits on Icor’s board of directors, was on vacation and unavailable to comment on the matter. But Chriss said since Reuters was “taking over” the rates platform, it made sense for him to “move on”. He will join New York-based Sac Capital Advisors, a $4 billion hedge fund, on January 2 as managing director of quantitative strategies, but remain an equity holder and board director at Icor.

According to Chriss and other market sources, Icor’s management, including chief executive Jeffrey Larsen, will continue to manage the marketing of Icor’s foreign exchange options operations, which has been introduced in Asia, Europe and the United States. Larsen was unavailable for comment.

It appears Reuters is happy with the FX options platform and has invested another $7 million as part of Icor’s latest funding round – a figure not matched by Icor’s founders and original shareholders. This additional Reuters financing was in the form of convertible loan notes, which means Icor is still a 50:50 joint venture between Reuters and its founders and original shareholders, unless Reuters converted its stake.