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Three US Prop Trading Firms in which FXCM May Be Interested

In his presentation at the Barclays Global Financial Services Conference, on September 11th, FXCM's chief financial officer Robert Lande reiterated the broker's intention to grow its business via mergers and acquisitions. “Scale matters and we’re hoping to make some acquisitions”, he said, as he cited the broker's robust cash flow  of more than $100 million after tax in the first six months of the year, and liquidity exceeding $500 million, on top of the undrawn credit facility of $155 million. In the rest of the talk, Lande mentioned many characteristics of a business in which FXCM would be interested in. In this article we look at three businesses that match at least partially the characteristics enlisted by Lande.

 
For starters, Lande insisted that growing the institutional segment of the operations is important – however, he stopped short of saying the company would seek an institutional FX business to acquire as these, according to him, often leads to grave financial consequences for the acquirer. 
 
But still, in order to boost its institutional segment, FXCM needs the best technology support, as its institutional clients migrate to its own platform. So this would be one our criteria of search. Then, we'll be looking for a US-based business, that's right - as only 11% of the overall FXCM volumes come from the United States. It would be good for the broker to enhance this a little. We'll also be looking for companies under pressure – they would stand to benefit from the shield that a bigger player provides in the market.
 
In addition, we'll be looking for a firm whose profile is similar to that of Infinium Capital - the company which is among the targets of the broker.
 
That is why all of our three proposals come from Chicago, Illinois – all of them are proprietary trading firms, which have been experiencing the pressure of tightened oversight over online trading and high-frequency trading in particular. Moreover, the competition amid these firms is rather tight as their number has ballooned about five years ago: and now amid troubles, consolidation is under way. All of them have great technology and trading experience to offer. There's the fish you'd like to catch. 
 

Allston Trading LLC

 
Ok, so first on our list is Allston Trading LLC, a Chicago-based high-frequency trading firm and renowned market maker. The firm is relatively safe from regulatory troubles, apart from a fault in the distant past: in July 2006 the company, being a member broker/dealer at the Chicago Board Options Exchange, overstated its net capital by some 80% and had to pay a $7,500 fine to settle the charges. 
 
The industry's woos, however, have gotten to this business too and in June this year, Allston's chief executive Raj Mahajan signalled that the company is open to partnerships. In fact a potential partner has emerged and, according to the Wall Street Journal, Allston is in talks to merge with  RGM Advisors LLC, a London-based rival. Hence, if FXCM opts for this one, it should hurry a little. 
 
 

Gelber Group LLC

 
Next up is another Chicago-based business, but with global reach: the Gelber Group LLC. We're talking about a well-established proprietary trading firm (active since 1982) with experience in almost all sorts of assets, including Forex. The push into technological innovation gives one more set of points to this one. 
 
Regarding Gelber Group's reputation, it's almost clean with one “small” exception: in February this year, the U.S. Commodity Futures Trading Commission (CFTC) imposed a fine of $750,000 for fake trades which Gelber's employees conducted on the Chicago Mercantile Exchange and the IntercontinentalExchange Inc.
 
 

Geneva Trading 

 
Geneva Trading, despite its name, is a Chicago-based company also. Its business model is that of the principal trading and the company has supported futures markets and many exchange partners as a market-maker.  This company has been an expert in electronic trading since 1999 and has until now experienced no severe problems whatsoever. 
 
There is one peculiar feature of this business: its management is adamant when it comes to changing the business model, changes just do not happen – it's a proprietary trading firm and that's it. This may speak well of the company – you know what you're buying, but it may also mean that the management is not open to any strategic moves in terms of M&A.
 
 
You saw the three businesses but none of them is officially for sale. However, they all represent some lucrative opportunities in what FXCM is looking for: may be they just need the right bid price to open up.
 
 
The opinions in this article are purely subjective and hypothetical. There has been no intention stated by FXCM to acquire any of the three companies mentioned above.
TAGS: fxcm  fxcm forex broker  fxcm cfo  robert lande  fxcm mergers and acquisitions  forex m&a  forex united states  proprietary trading firms  chicago-based companies 

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