ICAP Pays 5.8% Yield

THE INCOME INVESTOR: ICAP is one of the largest interdealer brokers in the world with operations in more than 30 countries - but is the dividend sustainable?

Michael Wong, CPA 4 February, 2014 | 5:07PM
Facebook Twitter LinkedIn

ICAP (IAP) is arguably the best positioned among the interdealer brokers for financial regulation, because over half of the company's operating income comes from electronic trading and post-trade risk and information services.

But ICAP's three main businesses face mixed prospects. Electronic trading is being affected by temporary but potentially long-lasting government intervention in interest rates and currencies. However, electronic foreign exchange platform issues, such as balance between high-frequency traders and large-order financial institutions, could lead to permanent market share change. Regulatory reform in Europe and the United States will also meaningfully affect electronic trading, such as via a push for more OTC derivatives trading to be done through platforms such as swap execution facilities, or SEFs. Interest-rate swaps is the largest category of OTC derivatives, and ICAP is one of the best positioned to capture interest rate SEF market share, as it can leverage its existing customer relationships from being one of the largest voice brokers in rate swaps and made the strategic move to have large swap dealers co-invest in its platform.

Early and wide adoption by the industry would have a network effect that gives ICAP a sustainable competitive advantage in that asset class. Conversely, we view the industry's adoption of another platform as one of the company's greatest risks, as it likely would lead to a rapid decline in market share.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Michael Wong, CPA  Michael Wong is a stock analyst at Morningstar.

© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement