Michael Spencer, the chief executive of Icap, said today that the world's largest interdealer broker was firmly in the market for acquisitions, despite early indications that the volatility that drives its profits is returning to more normal levels.

As Icap's annual pre-tax profits surged almost a third to a record £330 million, Mr Spencer said there was an increasing array of deal possibilities for the broker, which stands between City institutions in bond, interest rate and derivatives trades.

He refused to be drawn on the size of Icap's acquisitions war chest or go into detail about targets. He said Icap, which spent £200 million on acquisitions last year, was not currently in takeover talks.

But he said opportunities "both large and small" were growing and consolidation in financial markets would continue.

"There are many powerful, structural reasons to be positive about the future of Icap's business and of the markets in which we operate," he said.

Dan Garrod, analyst at Citigroup, said: "Management outlook is bullish with continued expansion opportunities in equity derivatives, ship broking, cash equities, electronic offering and post-trade services.

"Industry size is now wider if these newer focus areas are included, allowing Icap to increase market share further."

Mr Spencer made his comments as profits rose 31 per cent in the year to the end of March against an 18 per cent increase in revenues to just over £1.3 billion.

Revenues at Icap's electronic trading business tose by 38 per cent to £273.9 million for the year.

Icap has ridden a wave of volatility in the wake of the credit crunch in the past year as City dealers have hedged the increased risks associated with their positions.

The group noted today that average electronic broking volumes reached a record high in March at $966.1 million. Mr Spencer said there was every indication that volatility would continue to increase.

Icap predicts that industry revenues should increase by more than 10 per cent a year over the medium term.

But the group, which circulates details of monthly trading volumes, said earlier this month that average dealing volumes had fallen by 12 per cent in April, after the record set in March.

This is the first dip in daily volumes since September last year and could presage the return of more normal market conditions.

A spokesman said volatility levels always rise and fall over a year and there was no indication of a decline in activity. He noted that Icap was facing increasingly tough like-for-like trading comparisons to beat in the coming months.

The shares dropped 17.5p to 652.5p, a fall of 2.6 per cent.

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