Archive for September, 2008

James Gow says “Arigato IG Group”

Wednesday, September 24th, 2008

IG Group acquired an 87.5% stake in Japanese Retail Forex Dealer FXOnline for $207 million. IG will also be granted an option to acquire the reminder of the firm in due course. FXOnline founder James Gow who owns the remaining 12.5% will stay on as CEO, while former investors FinTech Global Inc. and Mizuho Capital Co. have divested their holdings. This is the second major deal for James who sold 49.9% of the company to FinTech and Mizuho in early 2007 for around $100 million.

FXOnline has shown impressive growth over the past few years. The company reported revenue of $65.9 million for the year ending in March 2008 with pretax profits of $46.15 million. The 45 person firm boasts a 4% market share of the Japanese retail FX market, has a customer base in excess of 30,000 clients and processes 1 million transactions per month valued at close to $60 billion.

The street has long been searching for a suitor for FXOnline. Several investors had been considering a double play by bringing the Japanese broker into a partnership with a western FX firm in order to take advantage of the efficiencies offered by matching U.S. and European retail flow with Japanese retail flow. The company’s aggressive growth and western management also made them an excellent fit for western accusation.

With the deal’s completion, clients will be transfered from FXOnline’s current trading platform onto IG’s PureDeal platform. The move will not only generate additional cost savings but will also allow FXOnline to abandon its relatively weak technology offering based on software provided by FinaTek Services.

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NFA, CFTC go hunting heads in Money Manager land

Thursday, September 18th, 2008

The CFTC and NFA have stepped up their momentum in going after FX Money Managers.

On September 17th, the National Futures Association (NFA) announced that it had taken an emergency Member Responsibility Action against registered CTA, Capital Blu Management LLC. The action suspends Capital Blu’s NFA membership and prohibits the firm from soliciting or accepting customer funds, placing trades on behalf of customers or disbursing funds without the NFA’s prior approval.

The CFTC has also stepped up its actions and is actively pursuing investigations into multiple FX Money Managers. This recent activity can largely be attributed to the CFTC’s renewed sense of authority over FX fraud after the elimination of the Zelener loophole with the passage of the CFTC Reauthorization Act of 2008 on June 18th.

Unregistered Money Managers have long been the bane of the Retail FX industry. Largely allowed to run amok due a lack of regulatory oversight, many FX Money Managers have been peddling unrealistic returns while employing dishonest tactics in managing clients’ funds. The Forex industry has long awaited for the regulators to step in and take better control of the situation. I am sure many industry players will be very grateful for the regulator’s stepped up efforts in policing this vital sector of the industry

Over the past couple of years the NFA has put in an immense amount of effort into going after the solicitation of unregistered solicitors. This proved ineffective in curbing FX fraud as many of these solicitors simply introduced clients for self traded accounts. Unfortunately the self regulatory body has largely ignored the more dire problem of unscrupulous Money Managers.

In recent months many legitimate FX Money Managers offering more realistic (if lower) returns, have come forward to voluntarily register with the NFA prior to the enactment of mandatory registration. This has been largely spurred by a move on the part of many U.S. Retail FX Dealers to require registration from Money Managers carrying power of attorney on their clients’ accounts.

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Currenex dumps AIG, crawls into bed with JP Morgan

Thursday, September 18th, 2008

On September 17th JP Morgan replaced AIG as the central clearing agent on Currenex’s anonymous liquidity pool.  Concerns over AIG’s stability led many institutions to cease trading with the firm due to concerns over counterparty risk.

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Another One Bites the Dust

Thursday, September 18th, 2008

FXCM (Forex Capital Markets) is two-for-two in major shareholder bankruptcies.

The now bankrupt Lehman Brothers is a ~10% equity owner of FXCM. This is the second time in less than 3 years that a shareholder of FXCM has gone under in a market rattling ball of flames. After Refco’s October 2005 bankruptcy, it took FXCM and the Refco estate two years to find a suitable buyer for Refco’s 35% stake in FXCM. One of the lucky buyers was non other than the now defunct Lehman Brothers.

Drew seems to have a knack for picking a good short sell. On the other hand maybe if they had let him run the whole Bank/FCM maybe they’d be posting record profits and trading volumes right about now.

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