FXCM places interbank business in shop window to repay SNB shock loan

By:
Solomon Teague
Published on:

FX broker FXCM has unveiled its plans to sell its non-core assets to repay loans post-Swiss National Bank disaster, and focus its resources on wholesale as well as prime of prime services.

FXCM plans to sell its non-core assets by the end of this year to raise capital to repay the loans it took after the catastrophic day of trading in January when the SNB decided to break the Swiss franc’s de facto peg to the euro.

Ray_Kamrath-160x186
  Ray Kamrath, CEO at Faros Trading

Among the assets that will be sold is FastMatch, the platform it developed as a joint venture with Credit Suisse, of which it owns 35%. FastMatch provides high-speed execution to the high-frequency trader (HFT) and bank market.

FXCM believes FastMatch will generate substantial interest, having grown to trade between 30% and 50% of the average daily volume of Hotspot, despite its relative youth of two years.

Also up for sale is V3 Markets, the Chicago-based proprietary trading firm, and Lucid Markets, the HFT firm, both of which are 50.1% owned by FXCM.

FXCM has sold Faros Trading, a trading and research unit, to Jefferies for an undisclosed fee, with Ray Kamrath, CEO at Faros, becoming global head of FX at the bank. It also sold its Japanese business to Rakuten Securities for around $62 million.

Brandon Mulvihill, global head of sales at FXCM, says: "We wouldn’t be selling these businesses if the events of January hadn’t happened, because these are very strong, profitable businesses. We will now focus on our core areas of strength, the things we are best at and that generate us the largest profit margins."

After the divestment, FXCM will focus on two core businesses: its institutional department FXCM Pro, which will focus on its wholesale business; and FXCM Prime, which provides users centralized clearing across multiple venues, including rivals such as Hotspot FX and EBS.

FXCM Pro provides retail brokers with tailored pricing and execution in FX and CFDs, with 75% of its volumes in FX, with cross-collateralization between the two in one account, as well as custom settlement solutions.

Mulvihill says: "In 2014, [FXCM Pro] produced approximately $1 trillion in trading volumes and proved post-January 15 to be among the most resilient institutional clientele at FXCM."

Diversified client base

Its remaining businesses will leave it with people on the ground in London, Paris, Hong Kong, New York, San Francisco and Dallas. It recently doubled the size of its broker services desk. It will also leave FXCM with Trading Station II, its proprietary trading platform that was developed in-house.

The move does see FXCM exit the interbank market, but its remaining interests will leave it with a diversified client base, with FXCM Pro catering to retail brokers, small hedge funds and emerging-market banks, and FXCM Prime targeted at HFT customers.

FXCM Prime provides users centralized clearing across multiple venues, including direct access to single banks, along with pre-trade and post-trade risk monitoring.

This product addresses the needs of HFTs and funds, many of which are now seeking alternative credit solutions. FXCM Prime has its first customers trading live, doing in aggregate nearly $2 billion per day.

Further reading
swiss_francs_large 
Swiss franc: special focus

Mulvihill says: "We see Prime as a massive growth area, considering the growing number of HFTs, asset managers and funds doing FX, coupled with the increasing on-boarding requirements of tier-1 prime brokers.

"The number of HFT shops show no sign of slowing down, especially during a time when the regulatory focus on banks is making those banks more risk averse. These HFTs, in various shapes and sizes, all require access to centralized clearing across multiple trading venues. So our Prime product is well positioned to take advantage of that demand."

The divestment will leave FXCM considerably smaller, but, it argues, leaner, and crucially with some of its most profitable and loyal clients intact. It will target growth by increasing market share in FX through continued innovation and by launching a deal-desk model for small retail FX customers, bringing institutional FX business practice to the retail market.

It is also looking to broaden the CFD offering.

FXCM also insists it remains healthy, despite the challenging period after the SNB move in January, with $303 million in consolidated operating cash, $1 billion in customer equity, 195,000 active retail FX accounts and regulatory capital of $252 million, comfortably in excess of the $93 million minimum requirements.