The Perils of Public Life
FXCM and Gain’s IPOs were heralded as the dawn of the new age of transparency and respectability for the forex industry. The first few months of being public have gone dramatically against expectations. Despite a general rise in the stock market, with the S&P 500 up over 5%, both FXCM and Gain have languished, with both broker’s shares down over 10% since their IPOs.
The biggest problems have all been related to disclosure. Both FXCM and Gain have made dramatic claims regarding their trading practices and execution. These rosy proclamations seem at odd with the continued reluctance to provide true, full disclosure over trading practices and dealing rooms.
The fact that both FXCM and Gain are public entities places them under much greater scrutiny, and combined with the harsher regulatory stance post October 18th, has created an uncomfortable environment. It seems that neither Gain nor FXCM fully understood or prepared the ramifications of public life – and how they may have to alter their existing business practices to survive and thrive in this new environment.
FXCM has already been hit by two separate lawsuits. One suit alleges that FXCM violated securities law, in the run up to the IPO. Another suit alleges that FXCM’s aggressive marketing and dealing tactics were predatory and ripped customers off. Both claims seem to have some merit. Additionally, FXCM’s stock was recently downgraded by analyst of one of the banks that did work on the IPO. This is an extremely unusual move and shows true pessimism. Banks are usually loathe to downgrade stocks, it typically means they get shut out of future deals.
While these allegations may have come to lite regardless of FXCM’s IPO, the IPO has painted a huge target on FXCM’s back. Frustrated clients – and their lawyers – now have a crystal clear idea of exactly how much money FXCM is worth. Additionally, there may be strong incentives for other frustrated clients to come out of the woodwork if the initial lawsuits are upheld. Ultimately, if the retail forex industry wants to be treated legitimately, it will have to clean up its act, not merely pretend to.