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FXCM Inc. (NYSE:FXCM)

Acquisition of Gain Capital Holdings LLC Conference Call

April 9, 2013 8:15 am ET

Executives

Jaclyn Klein – Vice-President, Corporate Communications and Investor Relations

Drew Niv – Chief Executive Officer

Robert Lande – Chief Financial Officer

Analysts

Kenneth Worthington – JP Morgan

Andrew Gadlin – CJS Securities

Richard Repetto – Sandler O'Neill

Howard Chen – Credit Suisse

William R. Katz – Citigroup Inc.

Cory Lynch Dlugozima – Raymond James

Alex Kramm – UBS

Operator

Good day, ladies and gentlemen, and welcome to the FXCM Incorporated Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today’s call, Ms. Jaclyn Klein, Vice President of Corporate Communications and Investor Relations. Ms. Klein, please begin.

Jaclyn Klein

Good morning everyone and thank you for joining us. Joining me today are Drew Niv, FXCM’s Chief Executive Officer, and Robert Lande, our Chief Financial Officer.

Before we begin, I would like to remind everyone this discussion includes forward-looking statements including statements about our beliefs and expectations regarding a proposed transaction between FXCM and Gain Capital Holdings. The potential benefits of any such transaction and that actual results may differ materially from those indicated by forward-looking statements due to a variety of risk, uncertainties, and other factors. You can find the full text of our forward-looking statements and cautionary safe harbor language at the beginning of today’s slide presentation which was filed with the SEC earlier this morning and is available at the SEC’s website at www.sec.gov.

This discussion does not constitute an offer to sell or the solicitation of an offer to buy any securities. As the transaction proceeds, the subject matter discussed in the following presentation may be addressed in a registration statement or other document to be filed with the SEC. We urge you to read such documents when they become available because they will contain important information. Information regarding potential participants in any proxy solicitation of GAIN shareholders and a description of their direct and indirect interests, by security holdings or otherwise will be contained in any proxy statement filed in connection with the proposed transaction.

I now turn the call over to Drew Niv, FXCM’s Chief Executive Officer.

Drew Niv

Thank you, Jaclyn. Yesterday evening FXCM submitted a proposal to the Board of Directors of GAIN to acquire and merge with GAIN. We will provide details of our offer in this presentation.

Turning to Slide 3 to Table of Content, we are excited about the potential to combine two of the pioneers in retail FX. We believe the combination could result in a global leader in the FX industry, significant scale and synergy benefits. We also believe our proposal represents an attractive alternative for GAIN shareholders while increasing value for current FXCM shareholders.

On our call this morning, we would like to walk you through a summary of our offer to potential benefits for GAIN shareholders and clients and the potential benefits for current FXCM shareholders. We will also discuss why we believe this combination provides a better alternative for GAIN shareholders and GAIN as a standalone company.

We will start the transaction overview on Slide 5. On Slide 5, we list some of the highlights of the proposed combination and the potential benefits it could deliver to shareholders of both firms. The proposed combination of these two firms would result in an entity with significant scale. On a combined basis for fiscal year 2012, the combined entity would have had approximately $570 million in revenues, approximately $1.6 billion in client assets, and post synergy run rate adjusted pro forma EBITDA of approximately $163 million to $183 million.

We believe the combination could ultimately add between $50 million and $70 million in incremental EBITDA to FXCM standalone results. In addition to potential operating synergies, we believe the combination could lead to capital synergies which could release between $80 million and $100 million of restricted cash from the combined entities balance sheet.

We believe the potential benefits to both firms’ shareholders could be very material. The stock transaction proposed allows all shareholders to participate in the benefit of the merger. We project that after one time upfront restructuring cost; a transaction would be accretive in 2014. We also believe the combined firm would be better able to withstand market and regulatory challenges; have a stronger balance sheet and offer GAIN’s shareholders improved liquidity and trading characteristics. And together we believe the two firms would have superior platform for future growth and development opportunities.

I will now hand over things to Robert Lande, our Chief Financial Officer, to take you through some of the details of the offer.

Robert Lande

Thank you, Drew. Slight 6 shows a summary of our proposed offer terms. We are offering to exchange 0.3996 shares of FXCM common stock for each share of GAIN's common stock. Our proposal translates into our issuance of approximately 15.7 million shares of FXCM's common stock in exchange for 39.3 million shares of GAIN common stock, which is based on the fully diluted share count in most recent publicly available filings in the proposed offer price per share.

This represents $5.35 per fully diluted share of GAIN common stock; a premium of 25% to yesterday's closing price of $4.27; and total consideration of approximately $210 million. Our offer price also exceeds the 52 week closing price of $5.31 for GAIN, which occurred almost a year ago on April 27 of last year. The proposal would provide GAIN's shareholders with a 16.2% pro forma ownership in the combined company on a fully diluted basis assuming a 100% stock-for-stock transaction.

I will now hand things back to Drew to take you through what we believe are some of the benefits for GAIN shareholders.

Drew Niv

Thank you, Robert. Slide 8 summarizes some of the reasons why we believe this is an attractive proposal to GAIN. We believe that shares of the combined entity may enjoy increased efficiency and synergies from greater scale. We believe scale is critical to success in the global FX industry and that GAIN could face operational and financial challenges due to its current lack of scale. The combined entity would potentially have three times GAIN's tradable account and four times its client assets. Potential synergy could result in increased earnings per share and potential share appreciation.

We believe potential regulatory changes could have larger adverse impact on GAIN whereas combined entity could benefit from efficacy and agency based business model and geographic diversity. Finally, a combined entity may provide GAIN's shareholders a greater liquidity, additional analyst coverage of broader institutional base and a better correlation between company performance and share price.

In the appendix of this presentation you will see slides have described these points in greater detail. We believe the combination of our offer price premium and the potential advantages FXCM shares may provide future price appreciation resulting for potential synergies, protection against potential adverse regulatory changes and potentially enhanced training characteristics. In summary, we believe this is a compelling proposition for GAIN shareholders.

Moving to Slide 10, you can see some of the reasons we believe the proposed combination could also create significant value for FXCM shareholders. We covered a number of these previously when we discussed potential advantages to GAIN shareholders, so I'll just point out a couple of things. We believe this transaction could be accretive in 2014 after one-time restructuring charges. In 2015, we believe we will potentially see additional accretion as our plan would be complete our integration over the course of 2014.

Let me turn things over to Robert to talk a bit more about operating capital synergies that we see.

Robert Lande

On Slide 11, we list some of the operating synergies we believe are possible as a result of this combination. We believe the overlap of our products, markets and regulatory requirements creates a unique opportunity to potentially realize significant synergies to the consolidation of redundant, often fixed cost of operating in multiple regulated jurisdictions around the world.

We believe that FXCM could see an incremental combination of $35 million and $55 million in EBITDA for 2014 from this combination, and in 2015 we could potentially realize between $50 million and $70 million in incremental EBITDA. We have planned to achieve operating synergies through reduced employee compensation and benefit expense from lower headcount on a combined basis, selling and marketing expense reduction through the elimination of duplicative campaigns, and reduced occupancy and equipment, professional services, product development and other operating costs resulting from consolidation.

Our integration, philosophy and plan will be driven by minimizing customer attrition by providing continuity in trading experience and streamlining combined operations to retain best of breed. We plan to complete the integration over the course of 2014. We believe the extensive overlap of our products, operations and regulatory requirements, uniquely positions us to realize these material EBITDA synergies. GAIN currently offers many of the same products as FXCM, including retail FX, CFDs and institutional foreign exchange. Additionally, both companies operate in many overlapping jurisdictions, most notably, the U.S., UK, Hong Kong, Japan and Australia.

On slide 12, we discuss how this overlap in the potential scale of the combined entity could also result in the release of potentially material amounts of cash now restricted by regulatory capital or collateral requirements at trading partners. We believe that by the end of 2014, we could potentially free up between $80 million and $100 million in cash that is currently restricted to collateral requirements with trading partners and redundant regulatory capital across varying jurisdiction. Any cash freed could be used for a variety of purposes, including acquisitions, dividends, share repurchases or internal investment in Company initiatives.

I’d like to turn things back to Drew now to talk about the potential benefit for GAIN’s clients and closing thoughts.

Drew Niv

Thank you, Robert. Moving to Slide 14, our expected integration philosophy will be to minimize customer attrition by providing as much continuity as possible in trading experience for GAIN clients.

According to GAIN's filings over 40% of GAIN’s volume come from the MT4 platform, which FXCM also offers. Our goal will be to make this transition as seamless as possible for those clients, and as well as the other clients as well. For clients using GAIN’s desktop, web, and mobile applications, we plan to work to ensure a successful migration to our own internal offerings. FXCM has successfully migrated clients to our platforms in more than a dozen transactions over the past five years. We expect GAIN clients will also have the choice of choosing agency or principal execution, and will have access to our multi-language research and client services.

We also expect GAIN clients will also benefit from the additional value added services such as DailyFx, our proprietary secure portal that provides trading signals and high touch education, trading software offered in 17 languages, FX research and content in 16 languages, and customer support in 18 languages. We also expect GAIN clients to benefit from the potentially improved financial strength and stability of the combined organization.

Moving to Slide 16, we strongly believe the combination of both companies could offer a compelling alternative to the challenges of remaining a standalone company in this market. We list here some of the challenges we believe GAIN faces including a lack of scale, potential regulatory issues and less active and liquid market for shares in FXCM.

On Slide 18, we discuss certain next steps I’d like to emphasize, that we are highly motivated and prepared to move quickly towards a successful completion of this transaction, both Senior Management and the Board of FXCM completely behind the proposal. We’re communicating our proposal directly to the shareholders of both firms to inform them of what we believe to be an attractive opportunity. We would like to sit down with GAIN’s Board of Directors as soon as possible to discuss the benefits of our proposal and reach mutually acceptable fair terms for completing this transaction. We believe a negotiated transaction is the best path forward for those parties.

Nonetheless, FXCM will consider all reasonable options available to ensure full consideration of the proposal. Given our industry knowledge and experience with the transaction of this type, we believe we can perform due diligence very quickly, requiring minimal new information. We have a dedicated team in place that is ready to proceed with the support of the GAIN’s management and it’s Board of Directors. We believe this transaction can be completed before the end of this year.

In summary, Slide 19 summarizes why we believe this transaction potentially provides significant benefits to both FXCM and GAIN shareholders. These potential benefits include enhanced scale, substantial operating synergies, leading to meaningful accretion in earnings per share starting in 2014, and the ability to unlock currently restricted capital.

We believe our proposal offers GAIN’s shareholders an attractive option; a premium to its current share price; and a potential for long term share appreciation for potential synergies and a scale of combined entity; potential immediate benefits in the form of deeper liquidity and better trading dynamics. We believe a combined business – now proposal is an attractive alternative for GAIN’s shareholders. When they consider the challenges that GAIN potentially faces as a standalone entity in this business. We are excited to begin discussions with GAIN’s Board and Management Team regarding the merits of this transaction.

Before I turn this back to the operator for questions, I just want to start by saying that we are limiting and what we can say and what kind of questions we can answer. We are obviously not going to be negotiating over this conference call on price. So we are obviously not going to be able to answer in too much more details and we’ve already disclosed about what’s that caveat.

We will be taking questions now.

Jaclyn Klein

Okay. Operator, we are ready for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question is from Ken Worthington of JP Morgan. Please go ahead.

Kenneth Worthington – JP Morgan

Hi. Good morning. May be first, can you talk about how GAIN would interact with Lucid and are there revenue synergies there or and if so, how big could those be? And my question is like, because GAIN has a principal model, anyway I thought I couldn’t quite tell whether the Lucid interaction would be very positive or just a substitution effect for what they are already doing. That makes sense?

Drew Niv

Yeah. I think that first, I just want to make sure that we – in terms of getting this right, the way we would transfer the clients, obviously the clients would get a choice of principal agency execution. But according to the risk parameters we have set today, so we believe the majority of the volume transferring over especially in brokerage firms typically, the majority of volume is done by larger clients. The majority of volume would still be agency. The volume that would remain as principal largely due to smaller clients would probably interact with Lucid and it would have a positive interaction, we think, a more even, less risky interaction that way.

Kenneth Worthington – JP Morgan

Okay. But minority of the customers, of GAIN customers post transaction would interact with Lucid? I get that right?

Drew Niv

It’s a minority of the volume.

Kenneth Worthington – JP Morgan

Minority of the volume?

Drew Niv

Yes.

Kenneth Worthington – JP Morgan

Okay. And then you are obviously offering principal on agency to the GAIN customers, and just talk about may be how you would better manage the earnings volatility that we’ve seen at GAIN. GAIN has regularly taken losses. Are there other things you can do to may be reduce the volatility of their business, and if you are taking those steps, to what extent does that impact your revenue and earnings versus what GAIN has been able to generate?

Drew Niv

Yeah. At this point, we can’t do a lot except to just – we can’t say a lot about what were the exact things we are going to be doing, except to say that what I said before is that, if you look at our current way we manage the who goes – who is allowed to be on principal and who is allowed to be on agency. Large clients are now allowed to be on principal and we believe they represent a disproportionate risk as principal clients. And if you look at the way we are currently parsing out risk, that is how we would do it going forward as well, but to get into too much more specific, I can't do it this time.

Kenneth Worthington – JP Morgan

Okay, great. I will re-queue. Thank you.

Drew Niv

Thanks.

Operator

Thank you. The next question is from Andrew Gadlin of CJS Securities. Please go ahead.

Andrew Gadlin – CJS Securities

Good morning. I was wondering if you could discuss some of the clients that you have and that GAIN have, do you have familiarity with those clients, they switched back and forth between your platform and theirs?

Drew Niv

So we know from just client interactions that there are clients who come from GAIN to FXCM and those clients who go the other way as well. So we assume that there is some overlap obviously the reasons why we introduced a principal model last year as well even though the majority of FXCM clients, very large, large majority of FXCM clients have chosen to stay on agency. There are some people who prefer a principal model, but other than that we are not aware of what the exact overlap is, but there is going to be a little bit of it, not much.

Andrew Gadlin – CJS Securities

Would you expect to keep a lot of those clients, meaning that there isn't anything that you could point to that there is risk of them going to a third platform?

Drew Niv

I think that the risk is always there. Theoretically, I think there is a reason why people chose what they chose, and primarily we think by offering both models we essentially are able to service the clients either way he wants to do it, and I don't believe, I believe we can minimize attrition obviously like every other acquisitions we have done. We’re modeling in a decent amount of attrition just for conservatism thing, but I obviously hope to minimize it as much as possible. And like I’ve said in my prepared statement, we're very experienced hands at this and not a first rodeo by far. So we have learned a lot of painful lessons about revenue attrition and keeping clients, and we plan to be very vigilant about this and beat the plan as much as we can.

Robert Lande

Andrew, I might add to that, it's Robert. In the $50 million to $70 million in potential synergies post-integration that we have modeled in our best estimates of what we think might occur on attrition and obviously operating cost production, don't want to get into the details of it. But that has been factored in into our synergy estimate.

Andrew Gadlin – CJS Securities

Got it. Thanks. One more question. In terms of some of the estimates $35 million to $55 million of accretion next year and then $50 million to $70 million in 2015, could you talk about the timing that's inherent in those assumptions, in terms of timing of the deal closing?

Robert Lande

We assume that the transaction could close before year end this year, so those would be full year numbers.

Andrew Gadlin – CJS Securities

Meaning, late second half type closing?

Robert Lande

Yeah.

Andrew Gadlin – CJS Securities

Got it. All right. Thank you very much.

Operator

The next question is from Rich Repetto of Sandler O'Neill. Please go ahead.

Richard Repetto – Sandler O'Neill

Yeah. Good morning Drew. Good morning Robert.

Drew Niv

Good morning.

Robert Lande

Good morning, Rich.

Richard Repetto – Sandler O'Neill

I guess my question Drew is on background of how you decided to go about the letter to the Board and make it public, so it would appear that where there are overtures of discussions with GAIN management prior and how long has this has been going on I guess and what has – did you see the obstacles in the past?

Drew Niv

Personally Rich, there is not a lot that I can answer on that question. I mean if this transaction goes through as we hope, we're going to obviously include all the background details of what occurred previously or any history that there may have been. But obviously we did this publicly to just avoid any sort of issues and just communicate directly to shareholders, not just to GAIN shareholders, but even just to FXCM shareholders and end the sort of the speculation that’s been around this proposed transaction for years and years.

Richard Repetto – Sandler O'Neill

Okay. So but obviously I guess we would assume that you’ve tried direct communications privately prior as well I would assume.

Drew Niv

I can’t comment on that though.

Richard Repetto – Sandler O'Neill

Okay. I guess my one follow-up would be, in the regulatory environment that you talk about on page 24 and GAIN having some significant obstacles, I guess the question is, how do these regulatory obstacles impact yourself as well? And just getting a little more detail of how the combination the combined firm would be able to maneuver little bit more easily through this stuff that the regulators are putting in front of you?

Drew Niv

Yeah. So let’s work through kind of divide into three parts. So there is obviously stuff that impacts everyone, right. So this is, most of these are industry wide regulatory obstacles. Number one is, they are just and we discussed that in our prior conference call I think, God knows we probably discussed this in every conference call, there is just a general rapid inflation amount of regulatory cost inherent in operating this business. It’s an over-regulated business that in many jurisdictions and in fact that we have to support multiple overseas and domestic – there is U.S. and overseas jurisdictions supporting the regulatory financial infrastructure for those.

Its very expensive in our business both from a operating cost perspective and in a fixed overhead not related to customer volume, as well as just capital and much of that capital is actually just again fixed just for being in business. That alone essentially puts a hurdle out there, and if you think of it as completely unproductive, and by virtue of this combination you are able to eliminate that’s almost a complete duplicate from that perspective. And to eliminate that and essentially in financial services by itself the hurdle today is to pay with enough business for all these new compliance and all these new rules. And this combination just allows us to do it better, one of the biggest challenges facing GAIN is not unique to GAIN it’s just unique to them being a much smaller company facing the exact same – not exact same, but nearly the same regulatory cost and regulatory burden that we face, with a much smaller revenue-based deal.

So the fact that our combination essentially frees that up, today that is very, very significant cost, it’s a lots and lots of people and it’s lots and lots of money and systems and development time and all of those things that are just – and then they are a 100% necessary. So that’s one issue. The second issue is obviously there is a lot of the cash in this business. As you look at the balance sheet, a lot of the cash is somewhat illusory right that it’s – you have cash and it is yours, but it’s not available to be used as you like because there are so many regulatory requirements of which they are going up and they are going up on us and them. Again, these are industry based things.

By combining the two you are essentially able to, not just reduce the redundancy, but have a larger scale on capital and enable to actually free-up. That’s why we believe we can free-up a lot of GAIN’s capital that is tied up today, because a lot of that is just to deal with this and then more of that will be tied as a standalone in near future. So this allows us to get rid of that and make that from tied up cash if you will to free unrestricted cash.

Operator

The next question is from Howard Chen of Credit Suisse. Please go ahead.

Howard Chen – Credit Suisse

Good morning Drew and Robert, thanks for hosting the call.

Robert Lande

Hey, Howard.

Howard Chen – Credit Suisse

Just wanted to come back to those capital synergies Drew, since that's one of the major drivers of value creation. I was just hoping you could elaborate on how do those capital synergies breakdown by geography and synergy type as you see it. And what do you see as the risk that that excess capital, it can’t be released or redeployed overtime. As you said, you’ve done this a lot (inaudible) you could kind of elaborate on that.

Drew Niv

Yeah. Unfortunately this call is overly lowered no way of that. I can’t give you a lot of details and more than what we have put in the presentation on our slide. But I can tell you that if you look at – if you go to the regulatory filings and all sort of the public information that’s available on by the regulators on and then capital requirements and all of those things, you can see obviously that there is going to be significant synergies and that’s how we plan to do it.

Howard Chen – Credit Suisse

Okay, thanks. And then my follow-up, you spoke a lot also about the potential upside and expense and synergy realization, but what have you guys embedded into your assumptions regarding any revenue dyssynergies relating to customer overlap which was touched on before and just that transition from principal to agency.

Drew Niv

Yeah, I think that on as Robert was saying we have embedded into our model, into our EBITDA gain model, the 50 to 70 number, we have embedded a significant amount of revenue, the synergy, the revenue attrition if you will and lots of cost savings. So obviously a lot of that stuff is embedded in there and we can’t really for the first of this call cannot disclose, we are not disclosing publicly the components of this.

Robert Lande

I think may be Howard, I think you’ve known during the past that we’ve done a number of acquisitions and as Drew said we’ve always guided to fairly significant revenue to synergies, as well as cost. I think we’ve had a very good track record of being able to achieve. As described in our presentation, there is a significant overlap in products, markets that we operate in and regulatory cost between the two firms which we believe can provide us with numerous areas where we can gain economies of scale. In 2012, the combined operating expenses excluding depreciation and referring broker fees were approximately $330 million. So I think we believe our estimates ultimately of being able to achieve $50 million to $70 million in potential synergies post integration are very, very doable.

Drew Niv

And to your agency, Howard, to your agency and principal, I just go back to you (inaudible) if you look at that when we released our best offerings, our principal offering late last year, we spoke about our guidelines on how we plan to essentially minimize the issues and the risks of principal trading. There is still a tiny almost irrelevant amount of the trading that goes on at FXCM on FX and this is something that the GAIN transaction will not change by much, because we will, as I said before, the majority of the volume in that brokerage firm comes from the larger clients and the larger clients mandatorily move to agency and obviously small clients will have a choice.

Howard Chen – Credit Suisse

Okay. Thanks for taking the questions.

Drew Niv

Thank you.

Operator

The next question is from Cory Deleguizima of Raymond James. Please go ahead.

Cory Lynch Dlugozima – Raymond James

Good morning guys. A couple of quick ones here, what would you do with the GAIN GTX institutional platform?

Drew Niv

Unfortunately again this is one of those things that are going to be annoying and tell you I can’t comment on the individual business units and the individual plans for all those business units.

Cory Lynch Dlugozima – Raymond James

Fair enough. The second would be, would there be any anti-trust concerns in the U.S. you guys do the largest players or in other geographies?

Drew Niv

We expect that we will obtain the regulatory approvals for this and we don't expect any too much difficultly in doing this.

Cory Lynch Dlugozima – Raymond James

All right. Thank you very much.

Operator

The next question is from Bill Katz of Citi. Please go ahead.

William R. Katz – Citigroup Inc.

Okay, thanks very much. Good morning and thank you for taking my questions. Just a big picture question for you Drew, when you went public, so you talked about the stark contrast between Gain Capital and your own firm, and now here we are making [pitched] by the franchise. Could you talk a little bit about what's change in your mind about i.e. the underlying growth of the organization or the industry?

Drew Niv

What has changed? There’s some that's changed of it has not, so when we went public obviously one of stated reasons to go public was to make acquisitions and here we are doing that, and this would be our fifth since going public if we consummated deal. And so we’re obviously in keeping with – we're doing acquisitions and the majority as we said in the past the majority of the businesses now our industry are principal based businesses. In terms of what has happened in the last few years as you know that the headwind for the industry have increased tremendously from both a massive slowdown and volatility that has just kept going and going and going with obviously the exception of the first few months of this year, which have been great, and continue to be great, and I can happily say that so far things are going well, but that’s been essentially an anomaly.

And as we know obviously 2010, 2011, 2012 you’ve had a deteriorating amount of volatility, which is impacted the sector negatively both us and them. But obviously them as a smaller business, them as a principal business much more than us. And as well as you’ve had regulatory challenges that I described before essentially increase the amount of capital that both firms need to have decrease the amount of revenue, each firm can make offer their client and increase significantly, the amount of fixed costs for compliance.

So if you look at all of those factors to take them in, essentially the logic behind M&A is more powerful than it’s ever been, more necessary than it’s ever been, and that’s – if you look at the real point of this presentation is to answer your question if you will is that, we’re doing that because – its better for our shareholders, because they would gain from this the fact that we would have more scale. And for GAIN’s shareholders, we think its imperative than being a smaller business it’s a very more important for them – for our shareholders for them to be do this deal.

William R. Katz – Citigroup Inc.

Okay. In terms of capital management, could you talk a little bit about what your plans might be during the negotiating process for those standalone FXCM? And then if for some reason the deal is not consummated what might be your thought process on cash flow going forward?

Drew Niv

I can tell you that obviously as we said before, if we don’t have M&A that we are doing and we’ve said publicly in the past. Obviously then cash goes towards are paying of debt and buying that stock as to other part of that question, I can’t answer now.

William R. Katz – Citigroup Inc.

Thank you. I’m going to get back in queue. Thank you.

Drew Niv

Thank you.

Operator

The next question is from Alex Kramm of UBS. Please go ahead.

Alex Kramm – UBS

Just coming back to Rich’s question at the beginning and may be to Bill’s your – to some degree too, but I know you can’t talk about the discussions you’ve had with company management in the past, but maybe you can say a little bit more about the timing of the transaction regardless of any discussions you’ve had before? I mean – like why now is, do you think volumes are going to increase substantially and people are not noticing it and these companies are undervalued using the regulatory burden is going to increase in the near term very much that you think now is the time or anything else you can elaborate beyond what you said in the past on timing here?

Drew Niv

I think what I have learned on timing is that my forecasting abilities are not that great. So obviously we are not – we don’t really know what’s going to happen to volumes and volumes are good now. And as this is a public forum I can even say that for April we’ve had a pickup relatively to March so far month-to-date. So I mean volume this year has been fantastic. Obviously we’ve seen in newspapers, currencies are in the news, appears all the time the recent printing operations by the Bank of Japan have done wonders for volume. But whether that – I don’t make these offers, because I believe that we’ll continue – if I thought that organic growth was 100%, so if I thought volume and volatility growth, we are assured around the corner and definitely there I probably would do acquisition, so I like why waste the time.

The acquisitions in our mind and we've always said this, were defensive in nature, in a consolidating industry under strain. And the stuff that, unfortunately, we can forecast with a little bit more accuracy is that the burden of rules is going to increase the burden of the regulation not just in the United States, but in Europe and other places. It’s increasing all over the place and we are taking a very conservative approach. But either way if volatility keeps on going then both GAIN and FXCM shareholders are better off for being a combined company.

If volatility dives down from here, then both GAIN and FXCM shareholders are better off in a combined entity for all the reasons stated before. So the combination is more resilient in a defensive way and it is more obviously has a lot more upside if things keep going well. And obviously like I said so far this year things are going great, but I would see our ability to forecast whether that's going to continue or not as good as anybody which is zero.

Alex Kramm – UBS

Okay, that's great. Thank you. Just secondly I think for Robert more, I don't know have you said it before, but do you have any estimates around incremental D&A from intangible amortization or anything like that?

Robert Lande

No at this point I don’t. But I think as we go through this, we would expect to release additional information, but I don’t have anything more on that right now.

Alex Kramm – UBS

Okay. Thank you.

Operator

The next question is from Ken Worthington of JP Morgan. Please go ahead.

Kenneth B. Worthington – JP Morgan

Okay. Couple of follow-ups. First, when you moved from principal to agency post Refco, what kind of attrition did you see way back then?

Robert Lande

There was a little…

Drew Niv

There was attrition, there was some attrition, I wouldn’t say a kind of. A lot of that had to do with the fact that the system, the agency trading system was new at the time, this is late 2006, very few banks were making market so the prices were, you had a best bid offer that was bet bid offer of two effective market-makers and to others that were relatively ineffective. Most banks were not making markets electronically into an API in such small trading sizes. The data is obviously not only a technology for this improved and process for this improved but you have, nearly two dozen market makers making markets now for clients. So the depth of liquidity, the tiredness of the price, the rejection of the sales, everything has improved to such degree that we expect that this will go much better.

Obviously, I can tell you we’ve had lots of experience since then migrating customers we have bought in more recent times. And our experience shows that generally speaking attrition mostly occurs for compliance issues where the standards of the firm we are acquiring are much lower than ours and so we don’t allow lots of things, other people will allow. Attrition occurs because of financial incentives that are given to certain white labels are introducing brokers that we will not match because we believe it’s unprofitable and it was just done out of desperation in dying days of a firm.

Generally speaking, even though we have assumed for purpose of modeling of what we disclosed here, a significant level of attrition, I’m very optimistic GAIN is a heavily regulated firm just like ours. They are regulated here in the UK and Japan; these are three extraordinarily restrictive jurisdictions with very high standards. I don’t believe attrition will be as significant and I am hoping to beat the plan that we set out here, but we are not going to obviously disclose what those details are because we don’t know yet how optimistic we can be about that. Generally speaking, just to come back to your question, moving clients from principal to agency generally do not result in attrition. On a standalone basis, we just talk about business models. There are a few clients that like this better than that but I assume – to the client, the look and feel is not that much different.

Kenneth B. Worthington – JP Morgan

Okay. And then on the marriage to the deal, obviously we can get at least make our own estimates on the financial impact. In terms of the combination, does the combination give you pricing power or pricing stability that you might not have as a smaller firm? So I was thinking like does it help you with the white labels either preserving prices or increasing? Does it help you with the dealers? So as they are making markets just being a bigger firm actually allow you to change or improve your relationship with the dealer banks or – and does this help you do deals like. So it’s a fact that GAIN might not be out there as independent company competing it with you for other transactions, did you run into them all the time, where they disrupted in the deal side like this acquiring them help you there. So just I don’t know there might be others, but just three areas I was thinking.

Drew Niv

I will see that there is a lot of competition out there for obviously the business to consumer market here in terms of us to direct clients, there is loads and loads of competitors. So taking GAIN out does not lessen that picture. In business-to-business base of white labels there is other competitors as well. This will not help us in that way. So competition is unfortunately there is lots of competition. The where it does help us is, in the further recognition if you will of market leadership that FXCM in a fast consolidating market to with lots of private companies will have limited visibility as to that financial conditions and stability.

What it helps to us is that we are now just the combination of this transaction is done would be even bigger than FXCM as a standalone much more rock solid. We’d just be a much more compelling counterparty for all these individual clients, our business-to-business deals like white labels. And I think in general and a better credit if you will to our bank counterparties, but that is something that I personally doesn’t really resolve pricing power competition in our favor. What it does I think help us from a stature image and obviously creditably perspective.

And as we have seen since the IPO, if you track benefit for a practical edge to that, if you track average deposit size since our IPO has increased tremendously. We believe that this is an area where there is more upside as we scale up the balance sheet and the counterparty. There is, obviously if you look at Gain’s public filings, their average deposit size is smaller than ours. So we believe there is upside there. There is significant upside to being a larger more credible player. Even more so the 800 pounds of goal in the room in the business, but it doesn’t really help us from a competitive perspective.

Kenneth B. Worthington – JP Morgan

Okay. Great. Thank you.

Operator

The next question is from Andrew Gadlin of CJS Securities. Please go ahead.

Andrew Gadlin – CJS Securities

Hi. Just one deal related question, there is a $50 million cash component with an option there. Could you talk about that a little bit and how you’d like to use that?

Robert Lande

Yes. Thanks, Andrew. In fact I think I forgot to talk about that when I was going through the deal terms on slide six. But, yeah, we will be offering – it is a 100% stock-for-stock transaction if GAIN shareholders so choose, so obviously attractive if they want to participate in the potential upside of the transaction. However, for those GAIN shareholders who do not want stock, we are offering the GAIN shareholders up to $50 million in cash instead of our common shares if they would rather have immediate liquidity. And so we think that is also attractive for those who do not want FXCM shares. And then the $50 million is – would be easily financeable by ourselves to our existing cash or cash generation and in our credit facility.

Andrew Gadlin – CJS Securities

Just on money how much room do you have on your credit facility right now?

Robert Lande

We have about 75 million of room.

Andrew Gadlin – CJS Securities

Okay, great. Thanks very much.

Robert Lande

You’re welcome.

Operator

The next question is from Bill Katz of Citi. Please go ahead.

Drew Niv

Bill.

William R. Katz – Citigroup Inc.

Yeah.

Drew Niv

Yeah, go ahead Bill. You are on.

William R. Katz – Citigroup Inc.

Okay, I’m sorry. Can you talk about what impact if any there might be on the existing institutional conversion and on the white label pipeline from this type of transaction?

Drew Niv

It is zero. That should not impact us whatsoever.

William R. Katz – Citigroup Inc.

Okay and then while you have you guys just based on the March metrics, obviously a more attractive question, and those that for the last two months the active accounts have actually been going down despite some of the monetary policy discussions you mentioned. Could you talk a little bit about the dynamics of what might be happening behind scenes if you will, why that numbers have been tracing lower?

Drew Niv

No, not really. I mean tradable accounts had a big jump in March with I think accounts being opened at FXCM reflecting kind of the vibrant FX markets going on. Any kind of individual period I don't read too much into kind of what our accounts do – I think it's just noise. There is no trends that we certainly are on top of in terms of accounts. And then as you know accounts in a way kind of get overwritten by client equity and that was in state last year where our client equity went up some 15%, and I'm sure they wasn't anywhere near that kind of in terms of account growth, because we have tracked larger clients. So when we report in the month time client equity, we can talk more about that. But in terms of accounts, I can’t say there's anything that really put out other than it was a pretty good month in March quarter for tradable accounts, one of our bigger ads in a while.

William R. Katz – Citigroup Inc.

Thanks for taking all my questions today.

Operator

The next question is from Alex Kramm. Please go ahead.

Alex Kramm – UBS

Hi, thanks for the follow-up. Just one very quick one, outside of the typical rationale of this deal, you want to just get the accounts over, bulk up, get bigger, is there anything else that you haven’t discussed today or in the past around GAIN that you like, I mean maybe even just starting with the brand which I think you will probably retire, but maybe some technology that you like anything else that you would take that you want to keep and actually make your own business better?

Drew Niv

Unfortunately as tentative I don’t want to answer that question. As I said, this is one of those annoying phone calls where I have to say I cannot get into that right now. But as Robert said, we are going to release a lot more details about things as things progress. That’s collaborative once we hopefully we get to a deal here we are going to talk a lot about those things together with GAIN. I think you will likely to hear then, but I can’t get into it today.

Alex Kramm – UBS

Fair enough. Thanks again.

Drew Niv

Thank you.

Operator

I would now like to turn the call back to Mr. Jaclyn Klein for any further remarks.

Jaclyn Klein

Thanks. On behalf of Drew, Robert and everyone here at FXCM, we would just like to thank you for joining us this morning and we are looking forward to the next few days and coming weeks.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a good day.

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