Analysis: Forex and Binary Firms – Between IPO Intentions and Actual Listing

Companies in the FX industry are throwing the IPO abbreviation left and right, but going public remains a challenge.

Since the start of 2016, we have seen a number of companies from the foreign exchange industry getting the IPO fever and some successfully listing on a couple of occasions. The IPO of the year is clearly CMC Markets’ venture into the London Stock Exchange with a valuation of $1 billion at the time.

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While shares of the company have rallied over 16 per cent since the listing, the U.S. dollar value of the company has barely budged due to the dramatic decline in the British pound, with the market cap of the UK brokerage now at $1.035 million.

The second success story in the industry clearly has been the offering of the shares of Polish brokerage house XTB on the Warsaw Stock Exchange. The listing reached a valuation of $349 million at the start of the first day of trading and shares of the company have rallied over 25 per cent since then.

The announcement of the first half results of the brokerage this morning however has caused the stock to hit an all time low below the listing price. By the end of the trading day shares managed to claw back some of the losses with the market cap of the brokerage as of writing being just a touch above $352 million. The listing is still the biggest one in Warsaw this year.

Cautioning on IPO Intentions

Many companies have been vocal about listing on a number of trading venues, however not that many have been successful at doing it. The mere intention is not a guarantee of success and if history is any guide, most companies that balloon their valuations before an IPO have been badly punished by the market or have cancelled their public trading plans.

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As the old saying goes, ‘money loves silence’, and in the case of a number of IPOs not only in the financial industry, the most successful listings are those where the intentions for an IPO have been kept under wraps for as long as possible.

The main point is that an IPO is a difficult, expensive and time consuming process and every time a company decides to make a lot of PR noise before an upcoming listing, the results can be quite devastating. As an example we can take pretty much any multi-level marketing scheme in the world. Usually the first trick in the book is to solicit a capital investment in the form of shares in a company that is never going to get listed.

The Way from OTC Markets to NASDAQ and NYSE is Very Long

Just yesterday a big report about the perils of trading pink sheets and companies listed on over-the-counter (OTC) markets came to the forefront. Trading of the shares of a company called Neuromama has been halted by the U.S. Securities and Exchange Commission. The reasoning for the regulatory move was “potentially manipulative transactions” and worries related to the “identity of the persons in control” of the company.

A Bloomberg report exposed that the stock was valued at $35 billion before getting halted, a market cap which is higher than that of notoriously famous electric carmaker Tesla Motors. Relying on a set of patents for “heavy ion fusion technology”, the stock of the firm has ballooned to a valuation that is inconceivable for a company that hasn’t reported any financials since 2013.

The OTC market is full of companies that are not regulated in any way and whose valuations are questionable. The case of Neurorama is not an isolated case and the hundreds if not thousands of penny stocks that are trading over-the-counter have been frequently associated with pump-and-dump schemes.

The halt in trading of Neuromama came after the company has applied for a listing on the NASDAQ. The OTC market is full of shell companies which are aiming to lure in investors, cash out and disappear.

The only way to remain protected from such schemes is for investors to do their careful due diligence and protect themselves against ‘pump-and-dump’ scenarios. That said, over the years even savvy punters have been tricked into investing into some companies which have no real value. The IPO world inside and outside of forex and binary options remains a dangerous place.

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