FXCM Conference Call Review – Striving for World Domination!

Following last week’s earnings and revenue miss from FXCM, the broker held its conference call. As expected after their Citi Financial Services Conference Presentation last week, the call was devoted towards positive trends taking place for FXCM in 2013 and their market leading position. While not providing 2013, guidance, CEO Drew Niv did throw some nuggets of where he thinks the industry is moving and how FXCM will benefit. You can see the transcript of the call here.

Highlights from the call:

FastMatch & Lucid Markets: Niv stated that institutional revenue is becoming a greater percentage of the company’s business, from 7% in 2011 to 15% in 2012. Lucid Markets revenues are averaging $374,000 per day in 2013, up 37% from Q4 2012 (annualized that would be around $90 million). Niv added that FastMatch is hitting $2 billion in daily volumes and the joint venture is expected to hit breakeven levels during 2013 (FXCM invested $4million into venture). Based on 2012 results, institutional trading could contribute 25% or more.

Cash, Cash & More Cash: Despite the 1% in revenues, cash from operations grew 22% to $102 million. CFO Robert Lande explained that cash generation at the firm remained strong which allowed FXCM to increase its share buybacks and engage in favorable M&A deals. He added that “And this was a year of muted volume. If trading volumes were to pick up, you can just imagine what the cash generation potential of FXCM would be.” (We'll probably be hearing more about their cash advantages is the future and how they are using it to pursue accretive deals and enter new markets)

Regulations: Here’s where the fun stuff was. With the slides, and also stated by Niv, FXCM expects regulatory policies to continue impacting the market. They expect more US brokers exiting the country, Japanese consolidation to continue, and UK brokers looking to sell their operations (for further info about M&A activity, you can take a look at the M&A Panel last November, where Niv commented that they were being approached by many firms).

Niv added that FXCM could be a net winner from upcoming regulations. He pointed out that transaction taxes on single stock CFDs, which are popular in Europe, but where FXCM has no presence, could lead brokerage clients to shun the product and move towards Forex . He also stated that “Contrary to some of the press you may have read, spot foreign exchange is completely exempted from the financial transaction tax.”

In the US, Niv stated that “proposed regulation regime on the futures industry that is now being discussed and we believe close to being enacted that has come out of the MF Global PFG debacle over the last few years.” He explained that the regulations could cast a negative stigma on the futures industry negatively and benefit forex brokers. Further, Niv stated that Dodd Frank rulings are curbing trading between client and principals and promoted multi-dealer environments. As such, he believed that the rules will ultimately effect the retail market and ban sole broker market making, thus benefiting FXCM at the expense of the majority of the market. Basically, Niv is predicting that the US regulators will again provide a huge strike against the industry. (Author’s note: wondering out loud if FXCM’s opinion is their own or based on what they are hearing from insiders at the CFTC/NFA)

Overall: Niv and Co. reiterated a lot of what was said at the Citi Presentation. The overall image they are relaying is that volumes/Volatility is picking up and should boost 2013 revenues, FXCM is diversifying its revenue stream through new products and entering more geographical markets, and its brand image and successfully is allowing them to win more high end partnership business. With the above foundation, FXCM is openly striving to become a larger player in the institutional market as well as increasing their retail market share, at the expense of competitors.

Looking ahead, after the close of trading today, GAIN Capital will be releasing its quarterly earnings and volume figures. Basing their performance on their stock price, it has been a tough time over the last year. As such, it will be interesting to hear their take on the market. Specifically in relation to them buying GFT & FX Solutions US client base as well as their focus on expanding their non-FX products.

FXCM Fourth Quarter 2012 Earnings Presentation by