FXCM Inc. (NYSE: FXCM), a global online provider of foreign exchange (forex) trading and related services to retail and institutional customers worldwide, announced that its U.S. subsidiary, Forex Capital Markets LLC (“FXCM US”), has entered into a settlement with the National Futures Association (“NFA”). The settlement terms principally pertain to FXCM US’s practice concerning the execution of price improvements or “positive slippage” in its trading execution system prior to August 2010. The Company is also engaged in ongoing discussions with the Commodity Futures Trading Commission (“CFTC”) regarding this matter.
FXCM US originally enhanced its trading execution policy in August 2010 to help ensure that clients benefit from positive slippage on all market, limit and limit entry orders. The policy was further enhanced in December 2010 to address all order types, including stop and margin call orders, through FXCM’s No Dealing Desk (“NDD”) forex execution model.
Under the terms of the settlement, FXCM US has agreed, without admitting or denying any of the allegations, to pay a fine of $2 million to the NFA and to provide restitution, which the company estimates to be $8 million, to the affected clients. As disclosed on August 11, 2011 during its Second Quarter Earnings Conference Call and in related filings, the Company is making a reserve for both the restitution and fineassociated with this settlement and for its ongoing discussion with the CFTC. Certain partners of FXCM Holdings, LLC have agreed to reimburse the expense in substantially the amount of such reserve, resulting in no impact to the net income of FXCM Inc. All clients receiving restitution will be notified within 30 days.
“We are pleased to have reached an agreement that resolves the NFA’s concerns and that we believe is in the best interests of FXCM, our shareholders and most importantly, our clients,” said Drew Niv, Chief Executive Officer of FXCM. “We previously enhanced our execution system to pass along all price improvements on every order type and remain committed to providing the most robust forex trading platform available.”
FXCM’s platforms display the best bid/ask spread streamed from the firm’s liquidity providers plus FXCM’s mark-up. Every FXCM NDD forex trade is automatically offset in a two-step process, designed to ensure that FXCM does not profit from a trader’s losses. In the first step of the execution process, a trader clicks on the price and the order is sent to FXCM. In the second step, FXCM automatically sends the client’s order to one of its liquidity providers to offset the trade.
FXCM’s execution system prior to August 2010 only offered price improvements to clients in the first step of the process. If a better price became available on FXCM’s platform in the fraction of a second after the client submitted the order but before the order was received by FXCM, the client would benefit from the price improvement. However, FXCM’s previous execution system did not provide clients with price improvements in the second step of the execution process, even if FXCM was able to offset the order at a better price, excluding FXCM’s markup. FXCM enhanced the execution system in 2010 so that clients now benefit from price improvements in both steps of a transaction for all order types.
The occurrence of price improvements is based on market conditions, including volatility and liquidity. Of the approximately $8 million being credited to FXCM US clients under this settlement, approximately $650,000 represents trades placed in 2010, less than 0.3% of the company’s trading revenues during that period. The largest portion of the credits relate to trades placed before 2009. For the portion of clients who are receiving restitution, the median amount will be $17.40.
As part of the settlement, FXCM also agreed to enhance its existing procedures to ensure the efficient execution of customer orders, modify its adjustment practices and to ensure compliance with NFA’s anti-money laundering requirements.
Mr. Niv added, “FXCM continues to strengthen its compliance program and internal supervisory procedures.”
Source: http://ir.fxcm.com
