Icap, the London-listed interdealer broker, is to launch a system that will offer a low-cost alternative to trading Euronext.Liffe's financial futures contracts.

The broker has bought a majority stake in Altex-ATS, a London-based company set up by former futures brokers Jamie MacLeod and Simon Brown. Altex has developed a system that allows a company to match futures trades internally. It is understood it is ready for use and will be tested by Icap next month under the Altex-ATS name. Icap will use Altex to match trades in Euronext.Liffe's financial futures contracts, effectively transforming these into over-the-counter futures look-alike contracts. Altex will work faster than Euronext.Liffe's system. Icap's decision to launch the system comes amid high levels of user discontent at the futures exchanges over fees and record profits. It will make the OTC futures price competitive, undercutting Euronext.Liffe and eliminating clearing charges users incur when trading on the exchange. Michael Spencer, Icap's chief executive, who built a stake in UK-based derivatives exchange Liffe before it was taken over by Euronext in 2001, is understood to have harboured ambitions to buy Liffe before it was acquired. He has since been working to rebrand Icap as an OTC exchange and boosted its presence in the futures markets by hiring Kevin Collins from Deutsche Bank last year. Geoff Miller, a financials analyst at UK broker Bridgewell, said: "The futures area is an obvious complementary business that Icap has wanted to develop for some time and it reinforces the way interdealer brokers and exchanges are becoming indivisible. "It won't affect Icap's group earnings much in the short term but it could be significantly accretive in the long term. It adds an extra leg of growth and shows how it is investing to underpin the profit growth." Traders say the launch could help to increase volumes in Liffe on-exchange futures by encouraging greater liquidity. However, the system could spark a fierce price war, particularly in Liffe's flagship Euribor contract. The timing of Icap's move could also be embarrassing for Liffe's owner, Euronext, which is in merger talks with rival New York Stock Exchange. Euronext almost doubled profits from €98.4m ($126.3m) to €193.7m in the six months to June 30 on the back of a strong rise in cash and derivatives volumes. Revenues rose by a fifth to €557.7m, while derivatives trading revenues rose 26.4% to a record €205m. Miller said: "This move may also act as a reminder to exchanges that have come from monopoly positions that they are going to face increasing competition and won't be able to protect their margins." Collins is believed to be in charge of the project, while Brown is managing director. The two are understood to have enlisted the support of at least three big liquidity providers who will launch on the system in the pilot stage.