In a very surprising move Deutsche Bank, a very large forex liquidity provider, and one of the few ‘retail fx banks’ has announced that it is ceasing to provide dbFX (its retail forex arm). This effectively leaves forex traders with only one forex bank trading option – CitiFX Pro. Gain Capital is the big winner here as it acquires client assets (of those who’ll agree to this move) of dbFX’s current clients while FXCM loses what’s probably its largest White Label. In the latest chapter of the battle between two largest US forex brokers Gain Capital takes the upper hand.
This is what dbFX had to say about the reason for this step: “dbFX has been a strongly performing business for Deutsche Bank but has reached a point where in order to reach its full potential it requires significant investment in specific resources which are not consistent with Deutsche Bank’s current strategic initiatives.” If I read between the lines then what I can gather is that perhaps the White Label relationship with FXCM has become too expensive or non-competitive, perhaps of the ever reducing spreads and/or increased competition and regulatory scrutiny in the US. Another good reason would be that by June this year dbFX would probably be required to become an RFED due to its foreign bank status which would require major restructuring and additional compliance – which probably wasn’t worth it for Deutsche Bank.
Update 1: FXCM already managed to issue a public statement, apparently dbFX accounted for only 2.3% of its revenue in 2010, which is much much less than what I thought. FXCM’s operating income was $360 million in 2010 therefore dbFX only contributed $8.3 million. ”NEW YORK, NY, April 20, 2011 –Since 2006 FXCM has had a facilities management agreement with Deutsche Bank to provide technology, systems and personnel associated with DB’s retail FX offering, dbFX. On April 20, 2011 Deutsche Bank indicated it will be selling the dbFX client accounts and exiting the dbFX business. Earlier this year, FXCM had discussions with Deutsche Bank about purchasing these accounts. FXCM has a disciplined process for evaluating potential acquisitions and establishing their potential value to the company weighing important factors such as client concentration, brand loyalty and projected attrition. After considering these factors, FXCM made an offer to Deutsche Bank that reflected what we believed to be the full value of those accounts after the attrition associated with client transition. Deutsche Bank was able to find a buyer willing to pay a higher price and will be offering dbFX clients the option to transition their accounts off the current DB/FXCM platform onto the buyer’s platform or closing their accounts. Clients can continue to trade on the dbFX platform until May 13, at which time dbFX will stop offering this service.
Revenues from the dbFX agreement represented 2.3% of total FXCM revenues In 2010, and a smaller percentage in the first quarter of 2011. Since the inception of our agreement, client equity from dbFX clients was deposited with Deutsche Bank and was never included in client equity figures for FXCM. Per the terms of our contract, FXCM will be assisting Deutsche Bank with the wind down of dbFX, including transferring accounts to the buyer or closing them down, based on the individual account holders instructions.”
Update 2: Gain Capital too just issued its own statement: “GAIN Capital Holdings, Inc. (NYSE:GCAP – News), a global provider of online trading services, has reached an agreement with Deutsche Bank AG to acquire dbFX, Deutsche Bank’s retail foreign exchange trading business. The agreement also provides for the referral of retail forex clients from Deutsche Bank to GAIN Capital over the two-year period following the closing of the transaction. Under the acquisition agreement GAIN Capital will make certain payments to Deutsche Bank based on contract volume generated by transferring customers, subject to a specified minimum payment. The transaction is subject to customary regulatory approvals and other closing conditions.
Since dbFX was launched in 2006, volumes on the platform have grown every year culminating with full year 2010 volumes being 56 percent higher than full year 2009 volumes. ”We’re pleased to be able to offer our services to Deutsche Bank’s retail clients, and look forward to continuing to provide the high level of customer service that dbFX customers have come to expect,” said Glenn Stevens, chief executive officer, GAIN Capital. “One of the reasons we decided to go public was to selectively pursue attractive acquisition opportunities that would complement our business and enhance value to all parties. We believe this transaction does exactly that.”
dbFX clients will now be able to enjoy the benefits of trading through FOREX.com, GAIN’s award winning retail division. Zar Amrolia, global head of foreign exchange at Deutsche Bank, said “Having developed dbFX into one of the world’s most successful online foreign exchange providers for retail clients, we believe now is the right time to set the business on a course for further growth under the ownership of an online retail specialist. We will work with GAIN Capital to ensure a seamless transition.”
Deutsche Bank remains the world’s largest provider of foreign exchange to institutional and corporate clients.”
Below is the update as sent to dbFX’s clients.
Dear Client,
We are writing to inform you that Deutsche Bank will no longer be providing dbFX, its foreign exchange trading product for individuals and small institutions. This will take effect on Friday, 13 May, 2011.
So that you can continue to trade FX without any interruption dbFX has made arrangements that will allow you to move your account to FOREX.com, one of the largest providers of retail foreign exchange in the market. FOREX.com is a division of GAIN Capital Holdings Inc (“GAIN Capital”), a publicly traded company listed on the New York Stock Exchange (NYSE: GCAP). By migrating your account to FOREX.com, you will continue to exclusively receive the market-leading research produced by Deutsche Bank for a period of one year. We have established a process for the migration of your trading account to FOREX.com. If you consent to the transfer, dbFX will arrange for your trading positions and account balances to be transferred on Friday 13 May 2011 so that there is no disruption to your trading activity. In order to consent to the transfer, you are required to click on the ‘I consent’ button below by 5:00 pm New York time on 6 May 2011.
Opening a new account with FOREX.com. By clicking on the button below you are consenting to:
1. dbFX closing any positions you have open at 4pm New York time on 13 May 2011 at the Bloomberg mid rate*
2. dbFX wire transferring your cash balances to GAIN Capital.
3. dbFX providing your account data, including open trade positions and information in your dbFX account application, to GAIN Capital for account opening purposes.
*Your positions will be netted and re-established at the Bloomberg mid-rate in the FOREX.com trading system to enable seamless trading. The resulting action will have no impact on the equity in your account. Any gains or losses on open positions will be realised when your positions are closed in the dbFX system**. In addition, open orders will need to be re-established on FOREX.com’s trading platform.
Please note your dbFX client agreement will not be transferred to FOREX.com. Upon clicking on the consent button you will be taken to FOREX.com’s website where you can complete the consent process by accepting FOREX.com’s terms and conditions.
FOREX.com and GAIN Capital are not divisions or affiliates of Deutsche Bank AG. In addition, Deutsche Bank does not guarantee the performance of FOREX.com’s or GAIN Capital’s obligations or warrant the performance of its trading platform.
I Consent
If you do not consent to having your account transitioned to FOREX.com, you will not be able to trade after 4pm on Friday 13 May 2011 and your account will be closed. Any open positions will be closed at the applicable dbFX rate at that time. After your account has been closed you will be required to take the following steps:
1. Contact the dbFX client services team to request a Funds Withdrawal Form.
2. Complete the Funds Withdrawal Form including providing payment instructions (if these are different to those previously provided it will be necessary for us to verify these instructions).
3. Sign the Funds Withdrawal Form (physical signature required, electronic signatures are not accepted)
4. Fax the Funds Withdrawal Form to dbFX client services on 001-212-710-9001
Please visit our frequently asked questions page if you require additional information on this process.
Yours sincerely,
The dbFX team
Phone: 1-212-710-9000
Email: info@dbfx.com
Website: http://www.dbfx.com <http://www.dbfx.com/faqs>
**For further information as regards the tax implications arising from migrating your account from the dbFX system to FOREX.com, you are advised to consult your own independent tax adviser. Nothing in this letter should be construed as tax advice provided by Deutsche Bank or any other party.
About GAIN Capital (FOREX.com UK)
GAIN Capital (FOREX.com UK) is authorized and regulated by the Financial Services Authority (FSA NO. 190864). For further information about GAIN Capital (FOREX.com UK), please contact:
FOREX.com UK Headquarters
23 College Hill, 3rd Floor
London EC4R 2RT
Int: +44 (0) 20 7429 7942
Freephone: 0800 032 1948
Website: www.forex.com/uk
dbFX offers to provide assistance to customers for the account transfer to GAIN Capital (FOREX.com UK) at no cost to the customers. In doing so, GAIN Capital (FOREX.com UK) is not responsible for any losses, claims, liabilities, expenses, damages incurred in connection with the account transfer. Following the account transfer, Deutsche Bank AG, London will no longer be the counterparty to your trades and/or positions and will therefore no longer service your account. GAIN Capital (FOREX.com UK) will be the new counterparty to your trades and/or positions and will service your account going forward.
Lots of action today. This is quite a big move. Thanks for reporting. I wonder how many US clients dbFX has. This will probably be reflected in the next quarterly reports by Gain.