Hotspot FX August volumes remain in the doldrums, trounced by competitors: Did KCG exit at the right time?

Venerable institutional ECN Hotspot FX has experienced something of a downturn in trading activity during the last few months, with August this year’s volume figures being no exception, following very closely a similar pattern to last month’s low points which resulted in average daily volumes being at their lowest since 2012.

During August, total volume traded at Hotspot FX was $594.2 billion, with an average daily volume of $28.2 billion, which although significantly higher than July’s $540.7 billion total volume and $23.51 billion average daily volume, still does not come close to rival institutional ECN platforms.

Indeed, despite the increased market volatility across the entire electronic trading industry over the last few weeks, monthly results at Hotspot FX reflect very little advantage to the company having been gained by participants using this particular platform.

When considering this on a macro and commercial basis, it is ever more clear that KCG Holdings, Inc. Class A (NYSE:KCG) maintained a very calculated and shrewd path whilst holding onto Hotspot FX during the period in which the firm paid down its $536 million liability to GETCO, and then sold Hotspot FX at an opportune time for $365 million to BATS Global Markets, Inc. Class A Common Stock (BATS:BATS) heralding a very timely exit for newly solvent and now cash-rich KCG which can focus its efforts on its institutional market making and commission businesses.

Since the completion of the sale to BATS Global Markets, Hotspot FX has invoked a series of new rulings for market makers, including revising the timeframe under which market makers are required to act on their Non-Firm Liquidity to 100 milliseconds from 200 milliseconds, and adopting a policy under which market makers must quote a minimum size of 1 million base currency units.

The battle for supremacy among institutional ECN platforms remains very close between EBS, the electronic brokerage division of ICAP plc (LON:IAP) and Thomson Reuters’ FXall, upon both of which Hotspot FX has yet to gain ground.

When bearing in mind the advantage which Thomson Reuters has gained in this particular fiercely competitive sector of the institutional electronic trading sector following its purchase of FXall in 2012 for $625 million, average daily FX volume remains around the $100 billion mark over the last few months, clearly showing that whilst that in itself is a shadow of FXall’s performance at the beginning of this year, results at Hotspot FX remain only a quarter of that of its rivals, despite having been purchased for half of the price paid by Thomson Reuters for FXall three years ago.