Could KCG be taking the long term view by hanging onto its ECN despite another year in the red?
US electronic trading conglomerate KCG today released its 2013 annual report, which shareholders will likely find to be pleasant reading and a testimony to the company’s remarkable steps toward recovery from its catastrophic algorithmic trading error in 2012.
The company’s institutional spot FX ECN, Hotspot FX, forms part of the company’s Global Execution Services division which has, in line with the company’s overall performance, still operates at a loss, however the negative figure has reduced from a loss of $7.3 million in 2012 to a loss of $2.6 million in 2013.
These figures are not solely attributable to the Hotspot FX ECN, but represent the performance of the entire Global Execution Services operations which consist of Hotspot FX and KCG Bondpoint, as well as KCG EMS, which itself contains Knight Direct and GETAlpha.
Whilst still in the red, and a liability to the firm compared to KCG’s market making division whihc made a $115.2 million profit last year, up significantly from the $25.8 million generated in 2012.
Despite the market making division’s small profit, that is the only corporate segment which remains profitable, however there is no mention of any plan to offload Hotspot FX post-GETCO acquisition, which could be attributable to KCG taking a long term view.
The company’s client lifetime value is more than 10 years, which bodes well when considering that the loss itself is reducing. With this in mind, KCG Hotspot could once again become profitable as its steady and loyal corporate client base continue to produce volumes that head the company on a steady path toward a full recovery.
Total revenues from the Global Execution Services segment, which primarily comprises commissions and fees and, to a lesser extent, trading revenues, net from agency execution activity and activity on KCG’s venues were $197.8 million for 2013. As 2014 headed into its second month, February’s volumes showed a slight dip, therefore it could be that a long term view is a prudent approach.
For the full annual report click here.