Hotspot FX unlikely to be sold

In comments made to reporters on the sidelines of a Security Traders Association conference on Friday, and reported by Reuters, Knight Capital CEO Tom Joyce said that the company is unlikely to shed any of its major business units — which include Forex ECN Hotspot FX — as Knight looks to recover from its August 1 trading “glitch”, which cost Knight about $400 million and nearly led to its demise.

Were Knight to consider selling Hotspot FX, now might be a really good time. Thomson Reuters’ July acquisition of Hotspot FX rival FXall for $625 million set a nice high bar for acquisition multiples in the industry (see the LeapRate-Dow Jones Forex Industry Report for more details on M&A and publicly traded comps in the FX sector) — using the FXall benchmark would mean an approximate $150-200 million price tag for Hotspot FX.

And strategically, with Thomson Reuters’ move leapfrogging ICAP to become the leading Forex ECN, there are likely other firms looking to keep up with Thomson Reuters as the industry continues to consolidate. We also have noted that margins in the industry are gradually shrinking, making being a standalone smaller player such as Hotspot FX harder to maintain.

Joyce also reported that in September trading volumes at Knight’s various businesses have more or less returned to their pre-glitch levels. August saw a not-unexpected large dropoff in trading volumes in Knight’s main equities market-making business, as well as at Hotspot FX.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.




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