Interbank FX (IBFX) has been acquired by Monex, a mid-sized Japanese broker which has been active
acquiring assets to enhance its global footprint. In April 2011, it bought
TradeStation and it is through TradeStation that it seems to carry out this
merger.
The
combination of Monex, TradeStation, and IBFX under the same roof is powerful
and makes the group a force to be reckoned with. I will discuss more about the
combined firm in a later blog entry, but I wanted to focus on why this great
company went up for sale, and relatively cheaply.
I've known for months that IBFX was up for sale, but it was not an outcome CEO Todd Crosland was
particularly happy about. Spectrum Capital, a private equity firm that acquired a 40% stake in 2007 was reportedly forcing the sale. Crosland, who started the firm in 2001 and gave the venture plenty of his capital and time, did not envisage this kind of ending 2-3 years ago.
How did this company that came in at #46 in the INC magazine list of fastest growing private companies for 2008 (3224% revenue growth from 2004 to 2007) end up on the block for a mere US$17m?
IBFX succumbed to an untimely passing in large part due to tough regulations that made it both expensive to stay in business and hard to acquire clients through indirect channels (i.e., introducing brokers, money managers, etc).
It was IBFX (Interbank FX) which gave me my first experience with retail FX. I joined the firm in late 2005 to validate the concept that it could engage in "institutional sales". I should clarify that institutional accounts in this context are introducing brokers and small CTA/CPO/hedge funds of diverse size, skill, and integrity. The retail FX business in general was booming during this period. With time other people came to assist me on this role and our department of 15 people grew to the point that it was bringing in half of the accounts/volume/client deposits to the firm.
I left IBFX to pursue my own research goals shortly after the Spectrum acquisition. 2008 was a stellar year for IBFX and for all of the FX industry. The calamity developing in the sub-prime crisis and then credit crisis was driving up FX trading volume the world over.
But along with the twin crises came additional firepower for the CFTC/NFA to drive many retail FX offshore or out of business through prohibitive capitalization requirements, high regulatory costs/limitations, and disclosure requirements that no securities or futures brokers has had to comply with (such as disclosing the percentage of profitable/unprofitable traders).
There is no doubt in my mind that there are dozens of shady shops trying to perpetrate fraud under the pretense of participation in FX markets. And let's remember that these criminals often take the form of CFTC/NFA-regulated firms (IBs, CTAs, and CPOs). The CFTC/NFA should continue clamping down on these rogue shops, but without projecting the presumption of guilt to the dozen or so online brokers remaining - they are providing a valuable service to currency traders in the United States. Otherwise, what's next, should the SEC impose crippling regulations on the NYSE/Nasdaq because these exchanges earned clearing fees from trades initiated by Bernie Madoff's firms?
The 2012 Congress would do well to revisit the provisions that grant so much discretion to regulators which have no qualm about using a heavy handed approach with the pioneers of a still young industry.
I've known for months that IBFX was up for sale, but it was not an outcome CEO Todd Crosland was
particularly happy about. Spectrum Capital, a private equity firm that acquired a 40% stake in 2007 was reportedly forcing the sale. Crosland, who started the firm in 2001 and gave the venture plenty of his capital and time, did not envisage this kind of ending 2-3 years ago.
How did this company that came in at #46 in the INC magazine list of fastest growing private companies for 2008 (3224% revenue growth from 2004 to 2007) end up on the block for a mere US$17m?
IBFX succumbed to an untimely passing in large part due to tough regulations that made it both expensive to stay in business and hard to acquire clients through indirect channels (i.e., introducing brokers, money managers, etc).
It was IBFX (Interbank FX) which gave me my first experience with retail FX. I joined the firm in late 2005 to validate the concept that it could engage in "institutional sales". I should clarify that institutional accounts in this context are introducing brokers and small CTA/CPO/hedge funds of diverse size, skill, and integrity. The retail FX business in general was booming during this period. With time other people came to assist me on this role and our department of 15 people grew to the point that it was bringing in half of the accounts/volume/client deposits to the firm.
I left IBFX to pursue my own research goals shortly after the Spectrum acquisition. 2008 was a stellar year for IBFX and for all of the FX industry. The calamity developing in the sub-prime crisis and then credit crisis was driving up FX trading volume the world over.
But along with the twin crises came additional firepower for the CFTC/NFA to drive many retail FX offshore or out of business through prohibitive capitalization requirements, high regulatory costs/limitations, and disclosure requirements that no securities or futures brokers has had to comply with (such as disclosing the percentage of profitable/unprofitable traders).
There is no doubt in my mind that there are dozens of shady shops trying to perpetrate fraud under the pretense of participation in FX markets. And let's remember that these criminals often take the form of CFTC/NFA-regulated firms (IBs, CTAs, and CPOs). The CFTC/NFA should continue clamping down on these rogue shops, but without projecting the presumption of guilt to the dozen or so online brokers remaining - they are providing a valuable service to currency traders in the United States. Otherwise, what's next, should the SEC impose crippling regulations on the NYSE/Nasdaq because these exchanges earned clearing fees from trades initiated by Bernie Madoff's firms?
The 2012 Congress would do well to revisit the provisions that grant so much discretion to regulators which have no qualm about using a heavy handed approach with the pioneers of a still young industry.
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