ICAP, now part of TP ICAP, was a world-leading intermediary in wholesale financial, energy, and commodities markets. In essence, it wasn't a bank in the traditional sense of taking deposits and making loans to the public. Instead, ICAP served as a broker connecting buyers and sellers of financial products.
ICAP's Role as an Intermediary
ICAP's primary function was to facilitate trading between financial institutions, such as banks, hedge funds, and asset managers. They operated in various markets, including:
- Fixed Income: Government bonds, corporate bonds, and other debt instruments.
- Foreign Exchange (FX): Currency trading.
- Energy: Oil, gas, and electricity.
- Commodities: Metals, agricultural products, and other raw materials.
- Derivatives: Contracts whose value is derived from an underlying asset (e.g., futures, options, and swaps).
How ICAP Operated
ICAP provided a platform for these institutions to:
- Discover prices: See the prices at which other participants were willing to buy or sell.
- Execute trades: Buy or sell financial instruments quickly and efficiently.
- Access liquidity: Find buyers or sellers even when market conditions were volatile.
- Get market information: Gain insights into market trends and sentiment.
They acted as an interdealer broker, meaning they facilitated trades between dealers, rather than directly with end-clients.
ICAP vs. Traditional Banking
It's crucial to understand the difference between ICAP's role and that of a traditional bank:
| Feature | ICAP (Now TP ICAP) | Traditional Bank |
|---|---|---|
| Primary Function | Intermediary in wholesale financial markets | Taking deposits and making loans |
| Customers | Financial institutions (banks, hedge funds, etc.) | Individuals, businesses, and other organizations |
| Products | Facilitating trading of various financial instruments | Loans, savings accounts, mortgages, credit cards, etc. |
| Risk | Primarily operational risk (facilitating transactions) | Credit risk, market risk, liquidity risk |
Acquisition by TP ICAP
In 2016, ICAP was acquired by Tullett Prebon, which was subsequently renamed TP ICAP. TP ICAP continues to operate in similar markets, providing brokerage and information services to financial institutions globally. Therefore, when people refer to "ICAP banking" in the present day, they are often referring to TP ICAP's current services and activities within the wholesale financial markets.
In summary, ICAP wasn't a traditional bank but a crucial intermediary in the global wholesale financial markets, now operating as part of TP ICAP.
