November represented the ‘Day of Reckoning’ for public companies as most firms reported third quarter earnings during the month which reflected the large decline in trading activity from 2011 to 2012. Not surprisingly, revenue and earnings figures were much lower than last year’s figures. Commenting on the difficult period, Michael Spencer, Group Chief Executive Officer, said: “This has been one of the toughest periods in my 36 year career in the wholesale financial markets.” However, there were some glimmers of hope as several brokers experienced positive growth taking place in newer product offerings. Beyond the earnings figures, what was very worrisome during November was the release of October volumes data which showed trading activity declining again after the bump higher in September. With the cloud of the US elections over and a return of liquidity boosting prices of riskier assets, it will be interesting to see how FX volumes did during November.
Responding to the difficult environment, November also featured numerous product launchings and changes at brokers as they applied new methods to entice new customers and increase trading from existing clients. Surprisingly, the month also featured several new businesses being launched, even as many brokers were contracting their operations.
A list of key headlines:
Third Quarter Earnings lower YoY: FX brokers GAIN Capital and FXCM, along with Interdealer ICAP reported lower YoY numbers for Q3. Also, diversified global banks that released earnings during the month spoke about weakness in their FX divisions.
Broker Optimism: Bucking their poor YoY earnings, both GAIN Capital and FXCM did report optimism towards the future as they saw growth opportunities in their institutional platforms taking place in 2013.
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EBS Regrouping: Even with the tough period, ICAP released promising gains from its Traiana post-trade division and stated that it was working on expanding the product beyond FX. Although volumes at EBS were weak in October, ICAP was optimistic that the changes it implemented in its dealing rules would be a long term positive for the trading venue. After releasing their earnings, the big event at EBS was the launching of EBS Direct, a direct relationship offering that works alongside its legacy product.
Product Launches: In addition to EBS, Bloomberg was also busy and added Chinese Interbank FX rates to its price feed and FX Option trading on FXGO. GAIN Capital launched a mobile trading platform for its OEC unit. Also, Admiral Markets launched an advanced version of MT4 to its clients. In the futures market, the ICE launched the US’s first Indian rupee futures contract. With volumes falling for 2012 and expenses remaining, brokers and trading venues have been ramping up their product lines to gain competitive edges in the market.
New Products and Brokers: During November, the most notable product launch from a new company was Tradable, an open source trading platform. In addition, brokers continued to open in Cyprus despite the tough environment as CySec reported six new companies receiving regulation.
Reorganizations: Brokers continued closing operations during the month. In November, it was reported that Saxo Bank let go of 250 employees and its forextrading subsidiary closed down offices in Israel and Hong Kong. Forex broker Oanda also consolidated its operations and closed its Dubai office.
Regulation: On the regulatory front, the NFA continues to scare forex companies and issued an announcement that it may require brokers with a RFED license to meet the $20 million minimum capital requirement like FCMs. Such a change would have meaningful impacts on brokers who had downgraded their status from FCM to RFED recently. In Japan, the JFSA told brokers that it was working on Binary Options regulations. As such, until a ruling is issued, Japanese brokers were informed to suspend launching new binary products; but existing businesses could remain.