Barron's, America's premier financial magazine, has reported that Gain Capital Holdings Inc (NYSE: GCAP) shares could fall. Tighter leverage rules, the loss of a major client, and a regulatory change that will damage its metals trading would provoke Gain's share price to fall by 50 percent.
Gain Capital, along with FXCM, is one of the two foreign exchange brokerages which went public in December. Gain's IPO price was $9 but that has since dropped 23 percent to $6.90 on the New York Stock Exchange.
Barron's predicted the shares could slump all the way to $3.50.
The Commodity Futures Trading Commission (CFTC) cut trader's leverage to 50-to-1 in October and Japanese regulators will cut its limit to 25-to-1 later this year.
This would have the effect of forcing investors to put up more funds to maintain large accounts and execute larger trades. This could cut deeply into Gain's ability to generate revenue.
Gain will also lose a major customer in Tradestation Group Inc. later this year, which accounted for 5 percent of Gain's trading volume last year. Tradestation plans to bring its currency trading in-house.
Finally, Dodd-Frank financial legislation will require all commodity trading to be executed on exchanges after July 15. Over-the-counter metals trading accounted for 6 percent of Gain's revenue in 2010.
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