The case of US broker FXCM and positive slippage has another twist: FXCM has been ordered to pay an additional sum of $6 million to the CFTC.
According to the case settled by both sides, the company failed to provide an equal treatment to all customes regarding adjustments in prices. It also failed to seriously investigate suspicious activity in all related accounts.
It’s good that there’s a serious watchdog investigating such cases and acting. For your reference, here are the officials statements by both sides.
CFTC Statement:
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and simultaneously settling charges that Forex Capital Markets LLC (FXCM) failed to supervise diligently its personnel’s handling of more than 57,000 customer accounts that traded on FXCM’s forex trading platforms. FXCM is a registered retail foreign exchange dealer and futures commission merchant headquartered in New York, N.Y. The order also settles charges that FXCM failed to produce certain records promptly to the CFTC’s Division of Enforcement during its investigation.
The CFTC order requires FXCM to pay a $6 million civil monetary penalty and restitution of $8,261,937 to its customers and former customers. In addition, the CFTC order requires FXCM to retain, at its own expense, a monitor to review for three years: (1) its trade execution practices and policies as they relate to the change in price between the time the customer places the order and the time the order is executed by FXCM; and (2) its compliance with its restitution obligation.
According to the CFTC order, from at least June 18, 2008 until December 17, 2010, FXCM failed to supervise diligently the handling of customer accounts traded on the FXCM platforms by its officers, employees, and agents with respect to changes in price between order placement and execution on both market orders and margin liquidation orders. The order finds that FXCM’s failure prevented its customers from receiving the benefit of price movements in customers’ favor, but allowed its customers to suffer detrimental price movements. The CFTC order finds that had FXCM diligently supervised its personnel, FXCM would have discovered these problems with its trade integrity and would have had the opportunity to correct them before its customers were deprived of, and FXCM benefitted by, approximately $8,261,937.
Further, the CFTC order finds that FXCM failed to produce certain records promptly in its capacity as a CFTC registrant and thereby required the CFTC to issue a subpoena to attempt to obtain required records from FXCM.
The CFTC thanks the National Futures Association (NFA) for its assistance. On August 12, 2011, the NFA issued a Decision imposing a $2 million monetary sanction against FXCM in settlement of an NFA action (NFA Case No. 11-BCC-016) involving some of the same practices identified in the CFTC order.
CFTC Division of Enforcement staff members responsible for this case are Charles Marvine, Christopher Reed, Rachel Hayes, Stephen Turley, Rick Glaser, and Richard Wagner.
Statement by FXCM:
FXCM US Reaches Settlement with the CFTC for $6 Million
The settlement between FXCM and the CFTC was anticipated and previously disclosed on August 11, 2011, during FXCM’s Second Quarter Earnings Conference Call. At that time, the company established a reserve of $16 million in anticipation of the fines associated with the CFTC ($6 million) and the NFA ($2 million) settlements as well as restitution ($8,261,937) credited to affected clients. To date, the NFA fine has been paid and restitution to affected clients has been credited. The NFA and CFTC fines as well as restitution are all covered under that reserve, resulting in no negative impact to the net income of FXCM Inc.
NEW YORK, NY -October 3, 2011 – FXCM Inc (NYSE:FXCM) or the Company, a global online provider of foreign exchange (forex) trading and related services to retail and institutional customers worldwide, announces that its U.S. subsidiary, Forex Capital Markets LLC (“FXCM US”), has entered into a settlement with the Commodity Futures Trading Commission (“CFTC”). The settlement principally addresses allegations regarding FXCM US’s failure to monitor and maintain its trading systems prior to August, 2010. FXCM US had previously settled with the NFA for allegations regarding mainly the same underlying issues.
Under the terms of the settlement, FXCM US has agreed, without admitting or denying any of the allegations, to pay a fine of $6 million to the CFTC. As disclosed on August 11, 2011, during FXCM’s Second Quarter Earnings Conference Call and in its related filings with the SEC, the Company established a reserve in anticipation of the fine associated with the CFTC and the NFA settlement. Certain partners of FXCM Holdings, LLC have already reimbursed FXCM Inc. the expense in substantially the amount of such reserve, resulting in no negative impact to the net income of FXCM Inc. In accordance with the NFA’s offer of settlement, FXCM US has credited all accounts that were affected during the time period agreed upon with CFTC and NFA.
“We are pleased to have reached an agreement that resolves the CFTC’s concerns,” said Drew Niv, Chief Executive Officer of FXCM. “FXCM has previously enhanced its execution system to pass along all price improvements on every order type and remain committed to providing the most robust forex trading platform available. We are happy to have settled all our regulatory matters in the US, to have this behind us and to see this come to an end. “
About FXCM, Inc.
FXCM Inc., a publicly traded company listed on the New York Stock Exchange (NYSE: FXCM), is a holding company and its sole asset is a controlling equity interest in FXCM Holdings, LLC. Forex Capital Markets, LLC (“FXCM US”) is a direct operating subsidiary of FXCM Holdings, LLC. All references to “FXCM” in this press release refer to FXCM Inc.
At the heart of FXCM’s client offering is No Dealing Desk forex trading. Clients benefit from FXCM’s large network of forex liquidity providers enabling FXCM to offer competitive spreads on major currency pairs. Clients have the advantage of mobile trading, one-click order execution, and trading from real-time charts. FXCM’s UK subsidiary, Forex Capital Markets Limited, also offers CFD products with no re-quote trading and allows clients to trade forex, oil, gold, silver, and stock indices on one platform. In addition, FXCM offers educational courses on forex trading and provides free news and market research through DailyFX.com.
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