Tullett Prebon, Icap and Understanding When to Cut Ties

Dan DeFrancesco dissects the potential Tullett Prebon-Icap deal and talks about why the former would be better off getting away from the voice broker business.

Dan DeFrancesco, deputy editor, Sell-Side Technology

Dan DeFrancesco dissects the potential Tullett Prebon-Icap deal and talks about why the former would be better off getting away from the voice-broker business.

My first lesson in technology, and the speed it moves at, came on January 31, 2001, as an 11-year-old. It was a great time to be alive. I was in the sixth grade and had managed to obtain a Sega Dreamcast video game console for Christmas a month prior. 

To me, asking my parents for a Dreamcast was a smart, tactical move. At the time, Sony’s Playstation 2 and Microsoft’s Xbox had both recently been released and were doing battle. Most kids, eager to get the latest and greatest systems available, had one, or both, of those systems on their Christmas lists.

In my opinion, however, a Dreamcast was the way to go. The system had been out for a year. The library of games was larger, and cheaper. I had faith that upgrading from my beloved Nintendo N64 to a Dreamcast was a choice that would lead to years and years of enjoyment. 

And then January 31, 2001, happened. 

On that fateful day, the folks at Sega announced they would stop producing the Dreamcast after March 31 of that year. The company had decided to get out of the console business and become strictly a third-party developer. 

It was, to say the least, a gut punch. I barely had a month to enjoy my new system before I was told that it was essentially obsolete. And while developers announced they would continue making games for Dreamcast, I knew that would only last so long. The writing was on the wall.  To be blunt, I had hitched my wagon to a horse that was dead. 

So what did I do? I saved as much money as I could, sold some old games, and I waited.  While I did buy the occasional Dreamcast game here and there, I was conservative. My future would eventually be with another system, I figured, and I didn’t see the point in dumping money into one that would soon be irrelevant. 

Eventually, I invested in a Playstation 2, and while it was a few years later than anticipated, I finally had a console that would provide me years of enjoyment. 

Tullett Prebon-Icap

What does 11-year-old Dan DeFrancesco’s history of video game consoles have to do with financial technology?

Well, in case you missed it, on Friday news broke that a potential deal was in the making between two massive London-based interdealer brokers. Tullett Prebon and Icap both released statements saying the former was interested in buying the latter’s global broking business. 

The acquisition would mean that Icap would be getting out of the voice-broking business, while Tullett Prebon would be increasing its market share in the space. 

*Editor's note: On Wednesday, the two sides announced they had agreed upon a deal. To read more about it, click here.*

Coincidentally, the news coincided with a statement released by Tullett Prebon that said the firm was planning on reducing roughly 5 percent of its front-office staff. The statement also said Tullet Prebon’s underlying operating profit margin this year was now expected to be approximately 1.5 percent lower than last year. 

The firm stated that while interdealer brokers’ place “at the heart of the global wholesale OTC markets remains secure,” revenue declines are likely to continue with traditional interdealer-broker products.

“Over the summer and through September and October the level of activity in the wholesale OTC financial markets has continued to be under pressure from the structural and cyclical factors affecting the interdealer-broker industry,” the statement said. “Market volumes continue to be adversely affected by the more onerous regulatory environment applicable to many of our bank customers, whose trading activity has been suppressed by the deleveraging of their balance sheets and lower risk appetite.”

No Change in Sight

Let’s be honest: Those regulations aren’t going anywhere. It’s not as if the folks at the SEC or the CFTC or in Basel are going to wake up tomorrow and say, “Let’s pull back on all these rules and ease up on compliance requirements, too.”

All signs seem to be pointing towards more regulations, and with it an increase in electronic trading. Why fight that movement? When Sega announced it was discontinuing Dreamcast, I didn’t go out and buy five more consoles and tons of games. 

Instead, I bided my time, saved money and eventually made the switch to a new console. It wasn’t easy, and there were certainly a few months where I wanted to buy more Dreamcast games, but I saw the big picture ─ one that didn’t included my old system.

So why now ─ with hardships continuing to hit the voice broking business ─ has Tullet Prebon chosen to double down? I’m not prognosticating that the voice-broking business is as dead as my Dreamcast was ─ voice will likely always be a part of the over-the-counter (OTC) market ─ but it seems that it will only diminish, not grow, in years to come. 

And while some might say it’s better to consolidate those still in the market to create stronger firms, it doesn’t matter how many horses you hitch your wagon to if they’re all close to kicking it. 

Like the column? Hate the column? Let me know via email ([email protected]) or Twitter (@dandefrancesco). 

Food for Thought

  • At this point, television show suggestions are the new, “You need to listen to this band!” However, I will jump in and suggest you all check out Aziz Ansari’s “Master of None” on Netflix. It’s very funny stuff about a guy in his 30s living in New York. I know, not exactly reinventing the wheel there, but trust me. Also, each episode is only 30 minutes...not a huge time commitment. 
  • The Buy-Side Technology Awards winners were announced last week. Being that this is a column geared toward the sell side, I know many of you might not be interested, but it’s still worth noting. There is a lot of overlap, and at the end of the day, great technology is great technology. Check them out here
  • Speaking of awards, the list of finalists for the American Financial Technology Awards 2015 has been released. You can find it here. The winners will be announced Dec. 7 in New York. Waters USA 2015 will precede the event. 
  • I’ll be at the Financial Follies on Friday. Feel free to come up and say hi. Although, depending on how late at night it is, please don’t expect thought-provoking conversation about fintech from me. 
  • Finally, in keeping with the commercial theme I started last week, here's an old European spot that imagines the wind as an actual person. Absolutely hilarious. 
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