James Moore: Icap announces a trading coup

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The Independent Online

Outlook The trouble with Icap is that while the company is a genuine British success story and a world leader in its field, what it does is so horribly arcane that even its most eloquent advocates find it difficult to explain the business without leaving their audiences scratching their heads.

Yesterday was a case in point. The launch an of "electronic market for trading euro interest-rate swaps with market-maker support" sounds like a truly uninspiring piece of corporate gobbledygook.

In fact, it is a significant achievement and a development that will have far-reaching implications. The "euro interest-rate swaps market" is one of the world's biggest financial markets, and is used by banks to trade interest rates. Currently, the amount outsanding in various derivative contracts is about $176trillion.

These are typically traded "over the counter" between banks with the help of a telephone-based broker, but regulators would really rather the process went electronic. The benefits are obvious: it would allow them to keep a better handle on what is going on. It would also mean that a clearing house could be placed between banks, thus allowing trades to be processed relatively smoothly even if one of these banks went down (which is exactly what didn't happen in the case of Lehman Brothers).

However, achieving it has proved easier said than done. Vested interests abound in any financial market and especially when they boast the size and structure of this one. It is one thing to set up an electronic trading platform, quite another to get people to use it. Financial considerations are only the first hurdle that has to be cleared, given the egos involved.

It is a testament to the diplomatic prowess of Icap's chief executive, Michael Spencer, that it managed to get this far. Icap has, uncharacteristically, run over the odd bump or two in the road in the past year. Amid all the technical burbling in yesterday's announcement was the clear message that the company is getting right back to what it does best. It is worth noting that Mr Spencer is stepping down as the co-treasurer of the Conservatives and appears to have put any political ambitions on indefinite hold. The party's loss is the City's gain.