February 1, 2018 / 7:59 AM / 19 days ago

UPDATE 2-NEX Group looks to rate rises, volatility to boost volumes in 2018

* Q3 revenue up 5 pct helped by NEX Optimisation

* CEO says U.S., UK potential rate hikes to help volumes

* Shares top FTSE midcap gainers (Adds CEO comments, details, share movement)

By Noor Zainab Hussain

Feb 1 (Reuters) - Financial technology company NEX said its markets had been more active in 2018 as forex volatility rose from historic lows and CEO Michael Spencer said potential interest rate rises were expected to boost volumes further.

The company, which provides electronic trading platforms for banks, asset managers and companies, also said in a trading update on Thursday that after U.S. President Donald Trump’s tax overhaul, its effective tax rate was expected to fall to 22-24 percent next year, from 26-28 percent this year.

Shares in NEX, known as ICAP until the sale of its voice broking business to TP ICAP in 2016, rose more than 9 percent to top the FTSE midcap gainers.

“Much to get excited about here,” Justin Bates, analyst at Liberum said in a note.

“In the Markets division, increased FX volatility in Jan means the outlook statement is very positive,” he said.

Bates, who has a “buy” recommendation on NEX, said guidance on the tax charge reduction would result in around a 5 percent earnings per share upgrade for full-year 2019 and 2020.

NEX, which matches buyers and sellers of bonds, swaps and currencies, reported a 5 percent rise in third-quarter revenue helped by stronger performance in its optimisation business, which helps customers cut costs.

2017 was relatively weaker for foreign exchange trading after inreased increased activity in 2016 following the U.S. presidential election and Britain’s decision to exit the European Union.

The early months of 2018 have shown an improvement, with foreign exchanged average daily volumes up 58 percent in January.

“It is still too early to assume with any confidence that the previous and prolonged period of subdued market conditions has come to an end,” CEO Spencer said.

“I am hoping we’ve come to an end of low volatility now and hoping I am right for a change.”

He also forecast at least three interest rate rises in the United States and one possibly in Britain, which would further help foreign exchange volumes.

If the recent weakness in the U.S. dollar persisted, then NEX’s trading volumes would be “very buoyant”, he added.

NEX Optimisation revenue rose 13 percent in the three months ended Dec. 31, offsetting a revenue 9 percent fall at its NEX Markets unit, which provides foreign exchange and fixed income trading technology via EBS and BrokerTec platforms.

NEX said its MiFID II regulatory reporting solution went live on Jan. 3, helping the company take on over 380 new contracts and 10 million pounds of annual revenue.

These new European Union rules, known as MiFID II, were created after the financial crisis and change how stocks and bonds are traded by increasing transparency.

When asked whether regulators had got it right, Spencer said some parts of it were “less good”.

“I think MiFID II is... an overly complex piece of change ... If we were at any point to have a review of MiFID in the Brexit environment, I would personally be in favour of peeling parts of it back rather than adding more layers to it,” he said. (Reporting by Noor Zainab Hussain in Bengaluru; Editing by Saumyadeb Chakrabarty and Jane Merriman)

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