Listen to the Article: No Entry to IPO? The Struggle of FX Brokers to Go Public

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The global IPO market cooled down in the first quarter of 2023, after two years of growth. Global IPOs dropped by 8% year-on-year, and the raised amount fell by 61%. Tech companies, including fintechs, had been leading the global IPOs, but they faced a sharp decline in their valuations, as Fazzaco brought up in the article on fintech funding frenzy. The crypto market and banking industry also went through a rough patch last year, adding more woes to the IPO market.

Meanwhile, the number of forex and CFD brokers going public remained lukewarm, and only a handful of them did. Some of the top brokers, big names such as IG Group, Interactive Brokers, Plus500, CMC Markets and so on, are publicly traded. But the list hasn't grown much over the years.

Forex Brokers Are Struggling to Go Public

Going public can boost a company’s prestige and raise funds for its future growth, mergers and others. However, many brokers find it hard to achieve IPOs, not because they don't want to, but because they can't.

Back in May, Fazzaco reported that the multi-asset online brokerage ThinkMarkets​ entered a "proposed business combination transaction" with Canada-based special purpose acquisition company (SPAC) FG Acquisition Corp, for the purpose of going public on the Toronto Stock Exchange. The deal was expected to be completed in July this year. While we congratulate ThinkMarkets on their listing journey, we also have to remember the past failures of many forex brokers who tried to go public, including those who attempted through SPACs.

In December 2022, Saxo Bank and Disruptive Capital Acquisition Company Limited (DCAC) called off their proposed merger due to bad timing. Israeli broker eToro also scrapped their merger plan last year and laid off 100 employees. Even earlier, AvaTrade chose JPMorgan and Jefferies to lead their listing preparations on the London Stock Exchange in 2021; FxPro also announced their intention to go public in the UK in 2017, but both IPOs were either put on hold or canceled altogether.

The Reasons for the Dilemma and the Possible Way Out

The reality is that many brokers are not in a good position to do IPOs. First of all, many online retail brokers operate with "labels", i.e. they rely on other institutions for their customer resources and trading software (such as white labels of MT4/MT5). If the situation is disclosed in the prospectus, institutional investors are going to push it away.

On the other hand, even if some brokers meet the criteria, they may not appeal to institutional investors. For example, a broker's main revenue comes from a jurisdiction, where they don't have a license for various reasons. Or, a broker operates in some emerging markets where there are financial services regulators in name only - they exist just to legitimize foreign financial service providers - in such markets where the regulatory system is weak or nonexistent, brokers often ignore regulations, but this mode of operation also blocks their path to listing.

Therefore, the only way out for brokers is to go around it, that is to be acquired by another company. However, this workaround may not work either. For example, if a listed company acquires broker A, then broker A cannot provide their business after being acquired unless the listed company also acquires their brokerage business.

Forex Market Becomes More Clotted

The forex market is a fairly saturated niche market that can't compare with the booming crypto market in recent years. Therefore, it’s rare to see companies queuing up to go public in this market. Moreover, it is becoming more clotted: big brokers are getting bigger and stronger, while many small and medium-sized brokers are barely surviving.