The world's top brokerages face months of uncertainty as persisting doubts over the economic outlook force their clients to pull back from their most lucrative markets.
Tullett Prebon Plc
Stock and futures brokerages, which execute trades on behalf of their clients, initially benefited from a spike in activity linked to market volatility through the middle part of the year.
But prolonged volatility is ultimately bad for business as banking, pension and hedge fund clients take refuge in safe havens such as commodities or currency and stop trading stocks, bonds and derivatives, which hits the brokers' bottom lines.
We're seeing one or two decent days a week, trading activity has definitely slowed over the last three weeks, said one senior trader at a large international brokerage in London.
Tullett said in an emailed statement: Revenue in the month of October was 3 percent lower than in October 2010. The trend seen in October has continued into November.
James Hamilton, an analyst at Numis, said: We can see little good news in the coming months.
Numis said it forecast a 0.9 percent drop in Tullett's revenue this year to 900 million pounds and saw no reason to change its forecast as it assumed November and December would be similarly weak as October, which was down 3 pct.
The Tullett statement came two days after ICAP said its revenue for the six months to the end of September was flat on last year at 867 million pounds.
Global imbalances and slowing economic activity are being played out together with the euro zone crisis, ICAP Chief Executive Michael Spencer said on Wednesday.
The climate of uncertainty is inevitably creating risk aversion in volatile markets around the world, he added.
These stark assessments came as British brokerage Evolution, which is being bought by South African rival Investec
Tullett, ICAP and rivals BGC Partners
Lawmakers are keen to force large swathes of the $600 trillion over-the-counter (OTC) markets to use regulated platforms and brokers are developing their systems in the hope of being the vendor of choice when the laws take effect.
Tullett said: We believe their introduction will be positive for our business as the proposals formalise the role of the intermediary in the OTC markets.
In the meantime traders have blamed economic uncertainty, partly linked to the euro zone crisis, for their largest clients' steady withdrawal from the markets over recent weeks.
Short-term funding appears fundamentally damaged and played a pivotal role in the demise of MF Global and others such as Bear Stearns and Lehman, said Simmy Grewal, an analyst at research house Aite Group.
The increased money in the system via quantitative easing hasn't helped the situation and higher capital requirements for banks through regulation isn't helping much either as it is almost encouraging banks to hoard money, she said. We need a new short term funding solution.
(Editing by David Holmes and Alex Smith)