GAIN Capital RPM Drops to $90 in Q4, Earnings Hit by New Tax Code

Institutional business volumes ticked higher, but profits margins tick lower.

GAIN Capital’s quarterly report released last night revealed the latest financial metrics of the company’s business. After reporting a decline in net revenues by 25 percent and a net loss of $11.2 million, the firm provided some details about the main reasons for the underperformance. Much of it was however related to a one-off adjustment related to the US tax plan as full-year losses would have been $6.3 million.

“Removing the impact of the U.S. Tax Cuts and Jobs Act on GAAP net loss, net income in the fourth quarter would have been a net profit of $1.2 million or $0.03 per share, while the full year would have been a net loss of $6.3 million or $0.10 per share,” the company outlined.

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As most brokerages know, that has been mainly the lack of volatility across major financial asset classes in 2017. The decline in trading at GAIN Capital was driven primarily by a drop in the Revenue Per Million (RPM) metric that is widely used by brokers as a key performance indicator.

Low volatility throughout the year sent GAIN Capital’s RPM metric to an average of $93 per million, down from $117 in 2016. The final quarter that ended on the 31st of December resulted in a decline to $90, a figure that is in sharp contrast to the US election-dominated final quarter of 2016, when a high of $151 per million was registered.

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GAIN Capital also published the total cost that the firm paid for FXCM was $7.2 million with a CTR of $15.5 million.

Institutional Business Ticks Higher

On the positive side of the figures was the performance of GAIN Capital’s institutional segment as the company reported an increase of $1 million in revenues to a total of $31.2 million. The segment’s profit however declined by about 10 percent to $4.9 million. Trading volumes have been buoyant lately with the ECNs average daily volumes ticking higher by 36 percent to $11.5 billion.

Margins compressed by 2 percent amid the increasingly competitive and difficult marketplace. During the final quarter of 2017, the VIX level has been at a multi-decade low.

AI Development

The company’s CEO Glenn Stevens hinted that the company is in the process of developing an AI-driven hedging engine that should reduce risk-management costs for the firm. The development of artificial intelligence has been one of the key directs in which both buy-side and sell-side firms have been focused on in recent years.

The company also outlined in its earnings presentation that it is already using AI-driven customer service for its clients in Europe.

While traders are looking for ways to better predict the direction of the market, brokers are continuing their quest to reduce costs in order to retain competitiveness in an increasingly saturated market.

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