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UPDATE 1-Q3 market slump knocks broker Tullet Prebon's revenue

Clare Hutchison
Friday, 8 Nov 2013 | 9:01 AM ET

* Q3 revenue 252 million pounds vs 276 million a year ago

* Hit by low trading activity as traders wait for Fed

* Shares drop 4 percent

LONDON, Nov 8 (Reuters) - Interdealer broker Tullett Prebon posted a 9 percent drop in third-quarter revenue on Friday, hit by a slump in business while traders waited to see whether the U.S. central bank would withdraw monetary stimulus measures.

Tullett, which like rival ICAP makes money by matching buyers and sellers of bonds, currencies and swaps, reported revenue for the four months from July to October of 252 million pounds ($404.35 million) compared to 276 million pounds a year earlier.

Revenue was lower across Tullett's three major divisions - foreign exchange, treasuries and interest rate derivatives. Nine-month revenue was 692 million pounds, 5 percent lower than the 731 million pounds earned in the same period in 2012.

Tullett's performance echoes that of a number of investment banks, which saw trading revenues battered in the third quarter, particularly in fixed income and currencies, following the Federal Reserve's surprise decision not to start withdrawing its monetary stimulus.

Analysts said it was hard to see good news in the short term.

"A significant recovery is not likely to materially manifest itself until there is the prospect of an increase in U.S. interest rates," said Numis analyst James Hamilton.

"We believe the Banks will continue to reduce trading activities and restrict the growth of their balance sheets."

Tullett's shares, down 4.4 percent to 303 pence, were among the biggest fallers on the FTSE 250 index at 1318 GMT.

The tough trading environment is another burden for banks who are also having to comply with new rules on capital requirement, which for many means scaling back their trading operations in turn hurting brokers who rely on bank traders for large portions of their revenue.

Tullett said uncertainty over the impact of new regulations relating to over-the-counter markets had also contributed to reduced trading.

Global regulators decided after the financial crisis that derivatives like interest rate swaps and credit default swaps, previously bought and sold through dealers, should be traded on electronic platforms, centrally cleared and recorded, in the interest of improved clarity and lower risk.

Tullett launched a swap execution facility (SEF) last month to comply with new U.S. rules on swaps trading. It is yet to publish trading volumes for its SEF.

British competitor ICAP, the world's largest interdealer broker, will report its first half results on Nov. 13.

Analysts expect ICAP's revenue for the six months to the end of September to fall to 742.49 million pounds from 746 million pounds in 2012, according to Thomson Reuters data.

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