Moody’s Investors Service downgraded the credit rating of Icap, the world’s largest inter-dealer brokerage, on Wednesday from stable to negative as a result of the potential impact of the Volcker Rule.
Moody’s said that inter-broker dealers will likely see “lower broking volumes as a number of banks scale down their capital markets activities” in response to the Volcker Rule, part of the U.S. Dodd-Frank financial overhaul that prohibits banks from engaging in proprietary trading. IBDs act as matchmaking middlemen for banks’ trading needs and would be affected by the rule, according to Financial News.
European regulations also played a role in Icap’s downgraded credit rating. Moody’s reported that, given the new capital requirements on asset trading currently being considered by European regulators, this would also significantly impact IBDs.
“The negative outlook also reflects mounting competitive pressure from peers offering similar products amid sustained client demand for lower fees,” Moody’s said, Financial News reports.
The recent debt crisis in Europe has led to a decreased volume in trading for IBDs. Icap reported in early February that revenue up until Dec. 2011 had decreased by two percent compared to the same period in 2010. The company also added that “continued uncertainty in the eurozone led to more subdued” trading volume, Financial News reports.
Icap said that the company is adapting to meet the changing market and demand.
“In response to market conditions, we have also been realigning our business to match customer demand by reducing headcount in areas of lowered profitability,” Icap said, according to Financial News.