FXCM Inc Unveils Revised Terms of Leucadia Agreement, Client Funds Down 25%

Details about the company’s dealings, reveal $332 mln fewer client funds in custody and an increased interest rate cap on

fxcm logoAccording to a regulatory filing made by FXCM Inc (NYSE:FXCM) with the U.S. Securities and Exchange Commission, the company has revised some key terms of its loan agreement with Leucadia. After the firm reported it had lost close to 2.6% of its clients in the aftermath of the Swiss franc debacle, when compared to the last reported figure in December last Friday, the details about client equity show a more complete picture of the situation.

The most notable change in the terms of the Leucadia National loan agreements with FXCM Inc (NYSE:FXCM) is the increase of the annual interest rate cap from 17% to 20.5%.

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In addition in the case of selling assets or equity of FXCM, the deals will be made for cash only. There is a clause which is most interesting revealing an on time cash payment to Leucadia if there is a “change in control” at FXCM Inc (NYSE:FXCM).

This clause seems to be securing Drew Niv’s position at the helm, and the commitment of Leucadia to go all the way throughout the restructuring process which inevitably is going to occur at FXCM Inc in the coming months.

The company is able to repay the loan at any time without incurring a penalty.

At the same time, client equity has dropped more materially with the company unveiling that client funds held in segregated accounts are totaling about $1 billion last Friday. This is materially lower from the latest number which the company published in its quarterly report at the end of September.

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The figure stood then at $1.332 bln, so the drop represents about 25% decline. Granted the bulk of this sum is most likely a direct results of balances going deeply into negative territory, while in the aftermath of the turmoil and before the announcement of a life-line deal with Leucadia, a number of clients could have submitted withdrawal requests for their funds.

In any case, the Swiss franc debacle puts the total amount of client deposits at FXCM back to 2011 levels.

An SEC 4-K form filing, revealed that former FXCM Inc Chief Dealer, Michael Romersa, has sold his last 363,807 shares on the 22nd of January in the aftermath of the release of the details of the agreement between FXCM and Leucadia.

Client Negative Balances Developments

While there are reports that some clients are getting their negative balances cleared by FXCM’s team, this comes as no surprise in light of the company’s official position that it will be treating negative balance issues on a case by case basis.

Despite what some pundits may claim, the company is within its full right to treat the situation as force majeure and applying the legal clause mentioned in the client agreement.

The Swiss National Bank’s move two weeks ago was an unprecedented event in the world of G7 currency trading. Even the collapse of the British pound out of the European Exchange Rate Mechanism pales in comparison to what happened with the Swiss franc on the 15th of January.

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