FXCM to See Selling Pressure with Removal from S&P SmallCap 600, KBW Says

After the close on Tuesday, June 30, FXCM Inc FXCM will be removed from the S&P SmallCap 600 Index. Keefe, Bruyette & Woods estimated in a research note today that the move would result in selling pressure of 2.2 million shares by S&P 600 index funds. Given a daily trading volume of 3.2 million, it implies 0.7 day of selling pressure, according to KBW.

KBW maintained its $1 target price and Underperform rating on the stock, which closed Tuesday at $1.58. The shares were under pressure in premarket trading, falling 4.3 percent to $1.53.

According to KBW's analysis, common shareholders would receive between $0.28 and $1.94 on a sale of FXCM's assets. The $1 target price reflects the midpoint of that estimate. The analysts once again pointed to the challenging terms of the Leucadia National Corp. LUK financing, which had "terms that significantly dilute shareholders in the event of a sale or equity distribution." Further, Leucadia can "force a sale after three years," effectively giving that company control.

KBW also points to additional risks to FXCM's business, including added regulation, further unexpected losses, and "unforeseen material lawsuits." The analysts' message was clear: stay away.

FXCM has shed 90 percent of its value this year following the unexpected Swiss National Bank-inspired losses in January. Since January 21, the stock has traded between $1.25 and $3. Current price is towards the lower end of that range. KBW is not the only firm with a $1 price target - both Barclays and Citi pegged prices there.