A new IPO is out and it makes a living off of the world of FOREX, which also happens to be the largest financial market in the world.  FXCM Inc. (NASDAQ: FXCM) priced 15.1 million shares of common stock at $14.00 per share.  So far wee are seeing shares trade around $15.00 for a 7% gain.  IPOs often depend upon the market and we are currently sitting on two days of a positive equity market.  What we are most interest in is FXCM’s opportunities ahead.

The price was at the mid-point of a $13.00 to $15.00 per share range.  The IPO was managed by Citigroup, Credit Suisse, and J.P. Morgan as joint book-runners; co-managers were Barclays, Deutsche Bank, Sandler O’Neill, and UBS Securities.  This might have come public sooner had it not been for the REFCO implosion which FXCM would rather forget than relive as it used FXCM’s platform under a revenue-share agreement.  That was 40% of its business at the peak, but everyone knows that REFCO imploded.  In the first nine-months of 2010, revenue rose about 6% to $264 million while net income was up about 16% to roughly $79 million.

FXCM has migrated from a principal trading entity to an agency firm which just processes currency trading transactions.  It earns trading commissions and fees in trading transactions.  The volatility in the currency market is good for the firm, so long as its customers do not get blown out.

The firm was very smart about one aspect of currency trading that has been a limitation for some other firms.  Its trading software is available in 15 or 16 languages, and the majority of customer trading volume comes from international clients.  That truly makes it a 24X5.5 business model, 24-hours a day and about 5 and a half days of the week.

FXCM revenues did not really grow from 2008 to 2009 and net income was lower as it suffered the same aspect of operations as many other online brokerage businesses: no short-term interest income as rates are near zero.  Transaction volume has offset that.

What the firm has going for it is that the currency world is an almost-regulation-free market.  Will that last?  Not likely under today’s trend of increased regulations.  A recent trend has been to limit leverage.  Market-making activities of financial intermediaries here in the U.S. and even in Europe is something else to consider under the new and future regulatory environments.

As of 10:45 AM EST we have seen more than 5.7 million shares trade hands and the last print was $14.98.

JON C. OGG

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