FXCM acquires GCI Capital, its Japanese franchise

In line with FXCM’s statement from March 2nd it has just announced its acquisition of the retail forex business of

In line with FXCM’s statement from March 2nd it has just announced its acquisition of the retail forex business of GCI Capital, a fairly large Japanese broker, which was essentially FXCM’s franchise in Japan. GCI Capital has been operating the fxcm.co.jp domain for years and now this will be directly operated by FXCM. This means little or no change is expected to FXCM’s Japanese clients but it is a big move for FXCM as it increases its direct clients base and overall group revenues. FXCM was already directly present and regulated in Japan following its acquisition of ODL and this move is another step in consolidating all its business under one umbrella, probably for operational and regulatory reasons.

Back in 2009 FXCM has renegotiated its deal with GCI and started charging it per volume commission rather than flat monthly fee (which used to be $6 million per year), thus increasing its own profit. This may have backfired in 2010 as Japanese volumes dropped due to mandatory leverage reduction enacted by the JFSA. This income would have dropped further in this summer as the leverage is expected to be reduced again but FXCM may have made this acquisition now in order to tackle this problem early.

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Following this acquisition FXCM will gain 17,000 more active clients bolstering its total trading accounts to 156,000 in total and will hold over $750 million in client deposits. No financial details about the deal structure were released but we will surely see this in FXCM’s Q1, or perhaps Q2, report.

Another interesting detail that caught my eye is FXCM stating that it has 25 liquidity providers whereas until now it always mentioned 10. Unfortunately there’s still no description who exactly these LPs are.

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FXCM Inc. (NYSE: FXCM), a leading online provider of foreign exchange, or FX, trading and related services, today announced that it has acquired the retail FX business of GCI Capital Co. Ltd of Japan for $5 million net of cash received, subject to certain adjustments.

GCI Capital’s retail FX business, which has been operating under the FXCM Japan brand, will provide an excellent complement to FXCM’s recent purchase of ODL Japan. The two entities will combine and operate as FXCM Japan, under the FXCM Inc umbrella. The combined companies will create a single unit better positioned to serve the Japanese market. GCI Capital has over 17,000 active accounts1 with client equity of over $110 million. As of February 28, 2011, FXCM serviced 139,000 active accounts1.

Founded in 1999, FXCM went public on the New York Stock Exchange in December 2010 and trades under the ticker symbol “FXCM”.

Commenting on the acquisition, Drew Niv, CEO of FXCM, said: “FXCM has been partnered with GCI since its inception and is very familiar with its business which should lead to rapid integration and realization of cost and revenue synergies. We continue to believe FXCM will be the only retail forex firm with a truly global footprint. In an industry in which size and scale are important, this is a major advantage.”

GCI Capital’s retail FX clients will continue to trade as they do now. Prior to the acquisition, GCI Capital’s retail FX clients traded using FXCM Inc’s retail FX platform and liquidity. A major benefit to FXCM clients is its No Dealing Desk execution on forex trades. Under No Dealing Desk execution, forex trades are fully-automated and executed back-to-back with one of the world’s premier banks or financial institutions. Up to 25 FX market makers compete to provide FXCM with bid and ask prices, resulting in low spreads and fast execution, with no intervention from a dealing desk on forex trades. Another major benefit of No Dealing Desk execution is the ability to place orders within one pip of the market with no restrictions.

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