Swiss franc coins are seen in a cash drawer in this picture illustration in Bern January 16, 2015.THOMAS HODEL/Reuters
FXCM Inc., which bills itself as the biggest U.S. foreign-exchange broker for individual investors while advertising in 180 countries, has raised its profile in a manner that can't be making online traders comfortable.
FXCM will get a $300-million (U.S.) loan from Leucadia National Corp. after the broker warned Thursday that client losses due to the Swiss National Bank's decision to let the franc trade freely against the euro threatened its compliance with capital rules. New York-based FXCM has a daily retail trading volume of $20.9-billion within the $5.3-trillion-a-day currency market.
The deal provides "critical financing" that "will permit FXCM to meet its regulatory-capital requirements and continue normal operations after [Thursday's] loss of $225-million due to the unprecedented actions of the Swiss National Bank," Leucadia said in a statement. The companies were advised by Zurich-based UBS Group AG and Jefferies Group.
FXCM's founders and management own about 44 per cent of the business, which has 900 employees, according to its website.
Shares of FXCM plunged as much as 92 per cent before they were halted Friday, following a decline of 15.1 per cent to $12.63 a share Thursday. The company handled a record $1.4-trillion of trades for individuals last quarter.
The severe impact of the franc's move may undermine the sustainability of the retail platform, Citigroup Inc. analyst William Katz wrote in a note.
CFTC Fine
The stock was downgraded by Katz and analysts at Raymond James, while Credit Suisse Group AG cut its rating to "underperform" and reduced its price target to $4 a share.
This isn't FXCM's first customer-related problem. In 2011, it was ordered to pay more than $14.2-million to settle charges for failing to diligently supervise 57,000 customer accounts, according to the U.S. Commodity Futures Trading Commission.
About 78 per cent of its revenue comes from retail customers, with institutional investors comprising the rest.
Asian clients accounted for 41.5 per cent of the broker's trading volume last year, while the share for the Europe, the Middle East and Africa was 35.9 per cent and the U.S. was 13 per cent.