Margareta Pagano: Icap targets an Aladdin's cave of opportunity

Michael Spencer's inter-dealer broker is buying Plus Markets, the tiny UK stock exchange, but he may have even bigger ambitions up his sleeve

Nearly six years ago, Michael Spencer's Icap was negotiating a £6bn merger between his inter-dealer broker and the London Stock Exchange, then run by Clara Furse. Although the two were close to doing a deal, the merger didn't go through because Mr Spencer, the bigger partner then valued at £3.3bn, didn't like the price; the LSE was valued at £2.6bn, and such a deal would have diluted his investors.

If it had gone ahead, it would have created one of the world's strongest trading platforms, part of a long-held ambition to create the "all-British" solution to compete with the world's stock exchanges, which were going through their own consolidation.

Even before the LSE talks, Icap had merger chats with Liffe, the London futures market that was taken over by Euronext. Since then, there has been a whirlwind of mergers and attempted mergers: the NYSE bought Euronext but was blocked from buying Deutsche Börse while the Hong Kong market has just paid more than $2bn (£1.3bn) to buy the London Metal Exchange, another which Mr Spencer had looked at buying.

It's worth remembering Mr Spencer's proposed LSE play when considering Icap's latest move, confirmed on Friday, to buy Plus Markets, the baby UK stock exchange which lists 150 companies including Arsenal Football Club and Quercus, the publisher behind The Girl with the Dragon Tattoo. In total the companies are worth only £2.3bn, which is tiny and small to mid-cap exchanges have a tricky record, hardly the sort of deal which would excite Icap.

So what is Mr Spencer up to? Is this a fresh assault on the London equities markets or does he have a bigger ambition up his sleeve? It would seem both are true: speaking to him on Friday he said the beauty of the Plus deal is that it provides Icap with the necessary regulatory licences it needs to trade products from equities to derivatives. It also does so cheaply and fast.

Most importantly, though, Plus also has a fledgling derivatives exchange, Plus-DX, which is already listing, executing and clearing services for products such as medium-term interest rate swaps and others.

As the world's biggest electronic broker in the over-the-counter derivatives market, Icap predicts big changes over the next year or so. For now, trading in derivatives is dominated by Euronext's Liffe and Deutsche Börse's Eurex exchanges. It's still a small player, but the LSE is also expanding its derivatives business and Nasdaq OMX has just announced it is setting up a platform to trade interest rate products. New regulations in the US coming out of the Dodd-Frank legislation will force OTC trading onto exchanges while new competition rules from the EU will open up opportunities.

On the equities side, Icap also sees scope for developing the small-cap business; Plus will be rebranded and there will be investment. The LSE's Xavier Rolet need not be too worried, yet. Mr Spencer says he would not dream of taking on Mr Rolet but he does believe in domestic competition. He told me: "This is not an assault on the LSE but there is room for more than one equity exchange in London; there is no reason why the LSE should have a monopoly."

Quite. Mr Spencer built up Icap in the 1980s by pursuing small brokers, transferring much of the business from voice broking to electronic and is now the biggest derivatives broker-dealer in the world. At the time, the City's Cassandras thought he was mad, arguing that voice broking was dead. Again he sees change and hopes to be ahead of the curve.

Can he do it again in a new space? "I'm not giving away any more secrets; you'll see more in nine months' time. We've got an Aladdin's cave of opportunity ahead." Watch this space.

Now shareholders have the teeth to get stuck into boardroom pay

At first glance the new rules regulating pay in the boardroom announced last week by Vince Cable, the Business Secretary, may look as though the Government has given in to the big business guns.

After lengthy debate, Mr Cable has altered two of the more radical parts of the original proposals: the first change is to say a simple majority of shareholders is now required to vote on the pay levels rather than the 75 per cent he had recommended and, second, pay levels are to be subject to scrutiny every three years, not every year.

Neither of the changes is significant. Indeed, they may prove to be just as effective, if not more so. To get a simple majority vote – either way – is still a big and difficult achievement, as we saw in the latest vote against Sir Martin Sorrell's pay at WPP.

Majority voting works in every other field, so there is no reason it shouldn't work with this.

On the second point, setting pay over three years might make it even more difficult for boards to justify annual pay rises and look to the long term.

In a global market as depressed as we are in today, it would be hard for a board and its remuneration consultants to justify paying much over the going rate. One of the problems has been that boards have paid their chief executives and executives way above the annual rate compared with the rest of their workers, allowing them to live in a parallel universe.

Imagine the chairman of a company announcing to its investors that it was going to pay a 12 per cent increase for the next three years.

There are other excellent measures – the obligation to provide a single figure for pay, bonuses and any shares vested is eminently sensible as is the proposal that "golden goodbyes" should be pre-agreed.

Shareholders can no longer complain they don't have enough power to shape pay.

They now have real control over board pay at every twist and turn; or at least, the teeth to bite, if that is their desire. And that, of course, is the big question.

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