As the twilight hours of 2014 begin, leading us into the new year which marks the half way point in the second decade of the 21st century, a retrospective glance over the year in which low volatility lingered across all sectors of the industry, large scale mergers and acquisitions among key companies continued in full force, China began to expand its reach into Western markets, the Russian ruble collapsed, causing trading disruptions due to low liquidity, technological developments progressed at the cutting edge of development and a period of greatly increased revenues occurred during the fall.
Compared to the halcyon days of the summer of 2013 which heralded vast revenues for many FX companies in all sectors of the business, many of which achieved all time records in volume figure, the early part of 2014 was a complete contrast, with low trading volumes blighting the first quarter.
Indeed, for the vast majority of industry participants, there was not much to write home about, thus whilst at the time revolutionary Japanese Bitcoin exchange MtGox failed, leaving investors some 850,000 bitcoins short, the headlines were dominated by the rise of virtual currency from a means of conducting illicit trade via now defunct anonymous marketplace Silk Road and a highly volatile and risk-filled unbacked folly for the eccentric and anarchistic to a fully fledged electronic currency which has gained the support of world governments, technology investors and experienced venture capital funds, as well as Forex companies.
The dramatic fluctuation in values calmed down, Bitcoin ATMs were installed across Switzerland, Israel and parts of North America, and the BitLicense regulatory structure was set in place by New York State’s financial services regulatory official Benjamin Lawsky.
Technological developments which drive virtual currency’s advancement have been welcomed by British Chancellor of the Exchequer George Osborne, and the rapid u-turn from almost an outlaw’s instrument for evading the mainstream system has become quite clearly the darling of mainstream investors and corporations.
Whilst Bitcoin technology developers and entrepreneurs were showing the world the way forward, the institutional FX business chose the grey suited approach, with a significant interest being shown in moving toward exchange-executed transactions.
In March, IntercontinentalExchange added the first five contracts for ICE Futures Singapore and ICE Clear Singapore, and a number of established global marketplaces began adding FX contracts to their listings, creating a substantial speculation that more FX trading activity would be conducted via exchanges, especially bearing in mind the impending EMIR rulings which require all OTC derivatives transactions to be conducted via a central counterparty, requiring infrastructural and reporting changes.
Among the OTC FX heavyweights, a year of paltry volumes across the industry did not deter high value mergers and acquisitions that have changed the entire landscape of the large and dominant companies within the global FX business.
A notable example was the purchase of evergreen British CFD and spread betting company City Index for $118 million by GAIN Capital Holdings Inc (NYSE:GCAP), a large and high profile example of international corporate interest in taking the intrinsically British CFD model abroad to a wide audience.
In an interview with LeapRate‘s Andrew Saks-McLeod, GAIN Capital CEO Glenn Stevens explained “As far as technology and liquidity is concerned, we may take City Index into new sectors, including B2B technology and liquidity provision” was a very interesting revelation from Mr. Stevens. Indeed, should this be the case, GAIN Capital will have a very strong method of competing with London’s liquidity and broker solutions providers such as LMAX and Sucden Financial in attracting brokerages from all over the world to use their order flow and technology.
On this perspective, Mr. Stevens considers that “GAIN Capital already has a very robust ECN, and a strong institutional business, whereas City Index in its independent state was a bit more narrowly focused on having a direct retail brand. On this basis, GAIN Capital has brought a partner business and a direct retail brand, therefore the City Index deal will bolster retail presence but also provide customer solutions – and by that I mean all manner of customer solutions from broker provisioning to liquidity.”
Retail FX expert Charles-Henri Sabet reflected this line of thinking with the his revival of flagging London-based CFD and spreading provider London Capital Group by providing a £17 million financing plan, plus establishing a trust fund for key personnel, and attracting some highly esteemed industry talent to the board.
“The company is London-listed but at the time was trading at an historic low. There is always room to turnaround management which we will do. In terms of corporate vision, LCG in its current state is a clear UK spread betting firm. 90% of business is spread betting, and 10% of its business is represented by FX Agency activity which includes selling platforms such as EBS or Currenex” Mr. Sabet explained to LeapRate.
“To go a step further and take the company into the future, the idea is for it to be transformed entirely and become a real online trading player – across borders and platforms. To offer trading beyond the UK, we will focus first and foremost on FX. We need to be recognized in new countries, therefore we would primary player in FX to start with” explained Mr. Sabet. “How to do this is being carefully considered we will start retail FX, which will be offered across a number of platforms” he confirmed.
Speaking with regard to the firm’s recent interest in specialist firm Algoweb, Mr. Sabet indicated that the purpose of this is to receive liquidity and distribute it to any customer that LCG wants, across both retail and institutional sectors. “We are able to offer a prime of prime facility to clients whose requirement is on a level slightly higher than that of standard retail customers” stated Mr. Sabet.
As the company begins to grow in its new form, Mr. Sabet confirmed that once a noticeable growth has been achieved in FX, the firm will be able to align the product and also be able to be a premium provider of equities, indices, and other key asset classes.
Meanwhile, FX companies in North America began to take stock of their product range, with FXDD having sold its entire retail client base to FXCM for $4.4 million in August, subsequent to which the company’s Chief Operating Officer Lubomir Kaneti having explained in a TV interview with LeapRate that the company’s intention in future in North America is to concentrate on liquidity provision and technological development in order to provide services to industry participants, whilst maintaining the retail client base in Malta.
Indeed, this direction has been emulated by Japanese FX giant MONEX Group, which ceased to offer the MetaTrader 4 platform in the latter part of this year, following the sale of its entire Australian and US MetaTrader 4 client base to FXCM, further contributing to the economies of scale which has become a battle for supremacy in the United States between GAIN Capital and FXCM, whilst MONEX Group’s American subsidiaries IBFX and Tradestation concentrate on their proprietary platforms.
Despite the tidal wave of confident acquisitions, attention was not diverted from the low volumes which had a dramatic effect not only on retail and institutional FX firms but also on some of the global banks, with Barclays, one of the world’s largest FX dealers, having considered laying off some 19,000 staff across its entire operations, with substantial cuts to its investment banking division.
It was not until September that trading activity increased, sending a vast surge forward to the high volumes experienced one year previous, with Japan’s GMO Click’s monthly volume venturing over the $1 trillion mark once again, FXCM experiencing its first time above $400 billion in monthly retail volume, EXNESS reporting a record $191 billion in October, along with KCG Hotspot setting a record of $38.2B ADV in the same month, and Saxo Bank’s volumes increasing by a remarkable 51%. This led to KCG looking at selling its efficient ECN by positioning it for acquisition toward the end of this year.
Meanwhile, China has been gaining strength, for the first time ever establishing an official yuan clearing hub outside its mainland. Sydney, Australia was chosen, giving increased hope to Western market participants wishing to do business in China, strengthening trade ties with Australia and ensuring that more companies will be attracted to establish businesses in the highly well organized nation. In the face of prolonged political unrest in Hong Kong, Shanghai may develop direct relationships with Russia and Australia, and overtake what has been known as a gateway to China’s markets since the days of the British rule.
2015 lies ahead, which no doubt will be as eventful as last year in this rapidly changing business.
LeapRate wishes everyone a happy, healthy and prosperous new year!