The electronic trading industry is highly competitive and we expect competition
to intensify in the future. In general, we compete on the basis of a number of
key factors, including: the liquidity available through the platform; the
quality and speed of execution; total transaction costs; technology
capabilities, including the ease of use of our electronic trading platform; and
range of products and services offered.
We face five main areas of competition:
• Single bank systems : The major global and regional investment and
commercial banks offer institutional clients electronic FX trade execution
through proprietary systems branded with the banks' names. Many of these
banks expend considerable resources on product development, sales and support
to promote their single-bank systems. The single-bank FX systems may be
offered as part of a multi-product offering, including fixed income
securities, commodities and derivatives.
• Other multi-bank, interdealer and ECN electronic trading platforms : There
are numerous other electronic trading platforms. These include ICAP through
its EBS offering; Reuters; FX Connect and Currenex, both owned by State
Street Bank; BGC Partners through its eSpeed offering; Knight Capital through
its Hotspot offering; 360T Trading Networks; Integral Development Corp. and
others.
• Telephone : We compete with FX business conducted over the telephone between
banks and broker-dealers and their institutional clients. Institutional
clients have historically purchased foreign currencies by telephoning FX
sales professionals at one or more banks or broker-dealers and inquiring
about the price and market liquidity of currencies. Non-electronic trading
including by voice remains the manner in which approximately 35% of FX trades
are conducted between market participants, according to a 2010 report by Aite
Group.
• Market data and information vendors : Several large market data and
information providers currently have a presence on virtually every
institutional trading desk, including Bloomberg and Reuters. Some of these
entities currently offer varying forms of electronic trading of FX.
• Interdealer voice brokers : The major interdealer brokers offer voice-
broking between banks in FX products, including FX forwards, NDFs and
options. Many of these firms have developed or may develop electronic trading
systems. While they are primarily focused on interdealer trading, they may in
the future offer their services to non-dealer clients.
We believe that we compete favorably with respect to these factors and we
continue to proactively build technology solutions that serve the needs of the
FX markets. We target primarily institutional customers who value the ability
to be presented with prices from multiple liquidity sources, or to present
prices to multiple market participants, for a potential transaction. Our
competitive position is also enhanced by the breadth of trade workflow
functionality we offer that covers the entire transaction cycle including pre-
trade, trade and post-trade solutions. Since our founding in 2000, we have
steadily added and improved trade workflow tools to address the comprehensive
and diverse needs of various segments of our institutional client base. We
deliver low-latency, resilient, software-as-a-service trading platforms and
workflow solutions to cater to over 1,000 institutional clients globally. By
processing trades electronically, our platform provides trade workflow
automation for each stage in the trading cycle and supports best practices with
respect to trade execution, including competitive dealing, role-based
permissioning, STP, automated confirmations and audit trails to improve
execution, control and risk management. We provide market participants with
multiple trading mechanisms and our Settlement Center product provides
comprehensive post-trade processing to enhance efficiency and reduce errors.
Many of our current and potential competitors are more established and
substantially larger than we are, and have substantially greater market
presence, as well as greater financial, engineering, technical, marketing and
other resources. These competitors may reduce their pricing to enter into
market segments in which we have a leadership position today, potentially
subsidizing any losses with profits from trading in other securities. In
addition, many of our competitors offer a wider range of services, have broader
name recognition and have larger client bases than we do. Some of them may be
able to respond more quickly to new or evolving opportunities, technologies and
client requirements than we can and may be able to undertake more extensive
promotional activities.
Any combination of our competitors or our current broker-dealer clients may
enter into joint ventures or consortia to provide services similar to those
provided by us. Current and new competitors may be able to launch new platforms
at a relatively low cost. Others may acquire the capabilities necessary to
compete with us through acquisitions. Significant consolidation has occurred in
our industry and these firms, as well as others that may undertake such
consolidation in the future, are potential competitors.
Company Description
We are the leading independent global provider of electronic foreign exchange
trading solutions, with over 1,000 institutional clients worldwide. We provide
institutional clients with 24-hour direct access, five days per week, to the
foreign exchange, or "FX," market, which is the world's
largest and most liquid
financial market. Our proprietary technology platform enables us to deliver
efficient and reliable FX price discovery, trade execution and automation of
pre-trade and post-trade transaction workflow with access to a deep pool of
liquidity from the world's leading banks and other liquidity providers. With
offices around the world, we believe our global footprint provides us with
access to a variety of high growth markets and diversifies our risk from
regional economic conditions, as more than half of our trading volume is
attributed to customers outside the United States.
Our comprehensive suite of electronic FX trading products, including FX spot,
FX forwards, FX swaps and non-deliverable forwards, or "NDFs," is used by asset
managers, banks, broker-dealers, corporations, hedge funds, prime brokers and
other institutions worldwide. Our platform supports the over-the-counter, or
"OTC," trading of gold and silver on a spot, forward or swap basis and provides
access to bank deposits. We offer single point access to multiple execution
mechanisms, including collaborative trading, request for stream, continuous
streaming prices, and an anonymous electronic communication network, or "ECN,"
as well as execution mechanisms proprietary to specific liquidity providers. We
also license our technology for distribution under our clients' brands, which
we refer to as white-labeled enterprise solutions.
As a trading technology provider, we facilitate trading between market
participants, but do not act as a market maker, take principal positions for
our own account or clear trades. Our clients settle their trades directly with
their counterparties or prime brokers outside our platform. Our institutional
clients' trading activities with us can be categorized into two types:
relationship trading and active trading. Relationship trading includes our
collaborative trading and request for stream systems, which are used primarily
by corporations and asset managers to hedge commercial FX risk. Active trading
includes our continuous streaming prices and ECN systems, which are used
primarily by banks, broker-dealers, hedge funds, prime brokers and other market
participants who trade currencies as a central activity or profit center.
From 2006 to 2010, the average daily trading volume on our platform, calculated
by counting one side of a transaction, grew from $37.5 billion in 2006 to $62.3
billion in 2010, representing a compound annual growth rate, or "CAGR," of
13.5%. In the first nine months of 2011, our average daily trading volume
further grew to $83.9 billion, representing approximately 2% of the global FX
average daily trading volume during the same time period. In July 2011, we
experienced record trading volume of $140 billion in a single day resulting
from increased trading across all our trading systems. In 2010, we generated
$99.1 million in total revenues, $46.6 million of Adjusted EBITDA, $22.5
million of Adjusted Net Income and $21.2 million of net income, which have
grown at CAGRs of 11.6%, 18.5%, 16.9% and 11.4%, respectively, since 2006. For
the twelve months ended September 30, 2011, we generated $114.2 million in
total revenues, $55.5 million of Adjusted EBITDA, $26.3 million of Adjusted Net
Income and $23.4 million of net income.
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Our predecessor business, FX Alliance, LLC, was formed in the State of Delaware
in June 2000. Our business was reincorporated as FX Alliance Inc. in the State
of Delaware in September 2006.
In connection with this offering, as required by the terms of our certificate
of incorporation as currently in effect, we will convert all of our outstanding
shares of preferred stock into 7,240,738 shares of common stock, on a one-for-
one basis. This conversion will occur immediately prior to the pricing of the
shares offered hereby.
Our principal executive offices are located at 909 Third Avenue, 10th Floor,
New York, New York 10022. Our telephone number is (646) 268-9900. The address
of our website is www.fxall.com.
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