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FDMs: We don’t need no consolidation

It’s been generally assumed that there will soon be widespread consolidation in the US retail space following the decision by the NFA and CFTC to raise the minimum adjusted net capital requirement for forex dealer members (FDMs).

By the end of September, FDMs will have to show they have $10 million in adjusted net capital; this will rise to $20 million by May 2009. The latest report from the CFTC shows that 10 firms’ adjusted net capital is less than $10 million, including CMC and Hotspot. These two will most likely get a cash injection so they can comply; what the others do is open for conjecture.

As it stands, a further eight FDMs have net capital below $20 million, including IFX ($12.3 million) and FX Solutions ($17.6 million). Both these companies are now part of City Index, so in theory they are already merged. ODL ($13 million) is another firm whose net capital falls short.

While talking recently to Michael Stumm, president and chief executive of Oanda, I asked him if he would be interested in taking over some of the smaller outfits. His answer slightly surprised me. Stumm says that for Oanda the only purpose for any such deal would be to accumulate client accounts. For Oanda, which has never really got involved in heavy marketing, this is not an attractive proposition. He does not feel that any of the FDMs would provide Oanda with anything significant on the technology front, so there is absolutely no reason for it to partake in consolidation.