London-based, FCA-regulated online retail brokerage Tickmill has just announced a new acquisition deal – the company has agreed to buy a majority stake in Cypriot brokerage Vipro Markets.
As part of the deal, Tickmill will inject $2.2 million into the share capital of Vipro Markets. The deal comes on the heels of increased scrutiny on the retail trading industry across the European Union.
Tickmill Group will also add a new license to its portfolio, since Vipro Markets is regulated by the Cyprus Securities and Exchange Commission. Aside from expanding the client base of the group, the deal is likely to insulate Tickmill from a hard Brexit scenario.
This situation is likely to materialize if no agreement is reached between the EU and the UK regarding the exit of the latter from the single market area. UK brokers that currently employ passporting to onboard clients EU-wide will likely need to open EU-based subsidiaries to continue doing so.
The capital injection which Tickmill executed as part of the deal is providing an additional cushion that enables new growth initiatives for Vipro Markets.
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Commenting on the deal, the Director of Tickmill Group, Duncan Anderson, said: “This is an exciting new chapter for Tickmill and one that will open up many opportunities to create extra value for clients of both of the companies.”
“I am confident that the existing clients of Vipro Markets will very much appreciate being part of a bigger and stronger Tickmill Group which will deliver new products and services at a much faster pace under our regulated entities in the United Kingdom, Cyprus and Seychelles,” he elaborated.
The deal is not going to affect clients of Tickmill, while the company will be closely working with the staff of Vipro Markets to ensure smooth integration of operations.
Shifting Broker Profitability Dynamic
The first nine months of 2017 have been a relatively challenging time for the industry. Profitability declined, as the volatility dynamic materially affected market positioning at retail brokerages.
Gone are the times when aggressive market moves have been squeezing retail clients out of the markets, causing big profits for market makers and banks. The current slow-moving currency market is materially affecting both market makers and straight-through processing (STP) brokers.
Another factor is the regulatory uncertainty, where brokers have no clear indication as to what might the ESMA do to allegedly protect the interests of clients. Higher leverage and different client classifications might be necessary, and all of this means more operational costs.
Sources with knowledge of the industry have been sharing for months that the market is full of brokerages that are looking for an exit. It is therefore likely that we will see further M&A deals in the coming months, unless the current profitability dynamics and the regulatory outlook dramatically change.