On what grounds did CFTC charge FXCM for SNB failures?


The US regulator sued FXCM for the capital shortfall and other failures related to the SNB black swan. Why exactly did CFTC charge FXCM?

19 August, AtoZForex – The US Commodity Futures Trading Commission (CFTC) filed a civil enforcement action against the brokerage firm FXCM Inc. Why did CFTC charge FXCM? According to the regulator, the firm failed to comply with capital requirements and to report its undercapitalization on time.

Why did CFTC charge FXCM? Details

FXCM Inc. is the biggest retail foreign exchange dealer in the US. FXCM was required to maintain adjusted net capital requirement of about $25 million. However, on the day of the SNB black swan, the capital of the company has dropped into negative territory.

FXCM and other brokers were hit hard by the SNB’s decision because client losses left the company with very little capital. The firm admitted to the regulators that it was at least $200 million under its adjusted net capital requirement mentioned above. The net liabilities of the brokerage were exceeding its funds by nearly $175 million.

According to the CFTC, the systems of FXCM were not efficient in protecting the company from such event, and this fact magnified the losses. The shortfall of the capital was not addressed before the next day when FXCM received a $279 million loan from Leucadia National.

The CFTC complaint states that the company has failed to notify the regulators about the situation. The firm eventually did provide the regulators about the situation however, it happened only after the NFA and the CFTC initiated the contact.

See also: Details of New CFTC Client Fund Protections measures

False advertising?

The CFTC complaint also contains information about negative balance protection marketing held by the FXCM. The firm was actively advertising the message that it would credit a client whose balance is in the negative territory to zero it out. Therefore the customers were guaranteed that they cannot lose more money than their initial investment:

“FXCM’s policy of zeroing out negative customer balances was memorialized in FXCM’s customer account opening documents, which had a provision stating that if the customer incurred a negative balance through trading activity FXCM would credit the customer account with the amount of the negative balance.”

The CFTC is currently looking for civil monetary penalties and permanent measures against future violations by the firm. The AtoZForex reached to both broker and the regulator for the comments on the case. The request is pending.

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