Analysis: FXCM Annual Report Reveals New Legal Battle and Volume Trends

On the heels of last week’s February metrics, financial services and fx provider FXCM has released an extended SEC filing

FXCM logoOn the heels of last week’s February metrics, financial services and FX provider FXCM has released its 10K Annual Report filing with the SEC, entailing a variety of company trends and legal proceedings.

Volumes Breakdown, CFDs Market Share and Revenues Grow

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Across the realm of FXCM’s paramount offerings, volumes showed a notable trend in specific currency pairs. Despite the offering of over 59 separate pairs, only seven managed to constitute 69.1% of the overall trading volume in 2013. More specifically, the EUR/USD pair represented over 21.7% of the company’s trading volume in 2013.

Also occurring during 2013 was an increased importance of CFD trading. During the year, CFDs accounted for 31% of retail revenues, even as the product only accounted for 17.4% of retail volumes. The 31% figure increased from 27% in 2012. The figures represent that FXCM continues to achieve higher margins from its non-FX products, even as they  announced that they have shifted more of its order flow to a STP model.

FXCM Legal Proceedings

Among legal findings, FXCM revealed a new case being brought against the firm. Filed in January of this year by an equity receiver for a former client, Revelation Forex Fund, its principal, Kevin G. White, and related entities RFF GP, LLC, KGM Capital Management, LLC filed a collective lawsuit against the FXCM US, and certain unrelated defendants, in a Texas state court.

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According to the FXCM statement, “The suit alleges that (FXCM) US is liable under the Texas Securities Act, and the common law: as a ‘control person’; and, as an aider and abettor of fraud and a breach of fiduciary obligations; and, for its negligence. The Receiver seeks joint and several liability for damages in excess of $3.8 million, plus exemplary damages under Texas law, interest, and attorneys’ fees.” This prompted a response by (FXCM) US, and on February 7, 2014 had pushed for a motion of dismissal, opting for arbitration actions via its client agreement with the aforementioned fund. In addition to this legal measure, the US fortified its position with several defensive positions, which are still pending presently.

V3 Markets Deal Reaches Completion

On February 28, 2014, FXCM completed an acquisition of the company Infinium Capital, along with a portion of its affiliates – the new venture has been consolidated as V3 Markets, LLC, which includes FXCM and Lucid Markets, an FX trading company.

The acquisition had been in the works previously, though only reached completion last month. The fundamental impetus of the merge was an expansionary initiative by FXCM into a broader range of financial instruments. Furthermore, the merge is hoped to provide a higher degree of connectivity and collaboration between a plethora of financial exchanges across multiple-asset classes – overall, the acquisition was valued at $30.0 million, which consists of cash and liabilities.

Worth Watching

Among other tidbits FXCM has revealed increased variable expenses related to both its retail and institutional trading units. During the year, referring broker fees rose slightly while institutional margins contracted. In regards to referring broker fees, they rose 9.9% in 2013, outpacing the 8% growth in retail trading revenues. In its institutional division, trading and Prime Brokerage fees increased to 30% of revenues versus 27.7% in 2012. At the same time, total institutional revenues rose 68% on an increase of 72% volume growth.  However, despite the contraction, revenues per million dollars traded remains high for an institutional division at around $51, versus $54 in 2012.

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