FXCM to pay $650K in settlement to US CFTC for CHF-related undercap charges

FXCM to pay $650K in settlement to US CFTC for CHF-related undercap charges

Do not invest more money than you can afford to lose.


Forex giant Forex Capital Markets [NASDAQ:FXCM] has suffered another blow in the US. The broker said on Monday it has reached a settlement with the US Commodity Futures Trading Commission (CFTC) regarding its US subsidiary’s undercapitalization at the time of the Swiss Franc (CHF) related crisis from January 2015. This settlement includes a fine of $650,000, brings to a close all material US regulatory matters affecting Forex Capital Markets LLC, FXCM’s US unit.

The CFTC charged Forex Capital Markets with undercapitalization, failure to timely report its undercapitalization violation, and guaranteeing against customer losses on 18 August, 2016, some 19 months after FXCM did the said misconduct.

As a result of the unpegging of the CHF from the Euro (EUR) in January 2015, when the markets went crazy and many brokers fell deep in trouble, FXCM had liabilities that exceeded its assets by some $175 million, putting its clients’ funds in great risk. The broker admitted to the gap only after it was contacted by the relevant US regulators.

Last week, FXCM announced its local arm got banned by the US National Futures Association (NFA) and agreed to withdraw from registration with the US CFTC and never to seek to register with it. As a result, the broker is exiting the market. The company was charged with taking positions against customers, concealing that a key market maker was tightly related to the broker, and misrepresenting its “No Dealing Desk” platform as providing no conflict of interest with customers.

The broker has entered into an agreement with its main competitor in the US, Gain Capital [NYSE:GCAP], to sell its clients base there. It will receive either $250 or $500 for each client, depending on the trading activity.

The proceeds from the sale will be used for the partial repayment of FXCM’s outstanding debt to US lender Leucadia National Corp. After the CHF-related crisis, FXCM drew a $300 million cash credit from the bank. Its clients experienced heavy losses and generated negative equity balances of combined some $225 million as a result of the CHF unpegging. According to the latest information available, FXCM has made loan repayments of $157 million to Leucadia with $153 million outstanding.

FXCM is the top broker in the US, but its business there is loss-making. Paired with the regulatory problems it faces in the country, it does not come as a surprise that FXCM expects its exiting the market would significantly improve its overall financial performance. It recently announced it generated a net loss of $13.9 million from US operations for the nine months, ended 30 September, 2016.

“Even without its US customers, FXCM remains one of the largest global retail foreign exchange brokers, and FXCM anticipates that the increased focus on serving its international global customer base will drive growth and continued profitability improvement,” the broker said at the time.

FXCM Group operates via several subsidiaries – US-regulated Forex Capital Markets LLC, UK-licensed Forex Capital Markets Ltd., and Australia-regulated FXCM Australia Pty. Ltd. It is 50.1% majority owned by FXCM Inc. The rest of the group moved to the hands of US lender Leucadia National Corporation in 2016.

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