CFTC forces FXCM US Forex market exit & CEO banned from the US market

CFTC forces FXCM US Forex market exit, according to the official Order filed by the US regulator. Moreover, the firm is obliged to pay $7 million in the civil penalty. What now for FXCM?

7 February, AtoZForex – The US Commodity Futures Trading Commission (CFTC) has just published an order in relation to the Forex Capital Markets, LLC (FXCM). The regulator has settled charges with the Forex brokerage firm for $7 million in a civil monetary penalty. According to the official announcement of the regulator, the fine was imposed at FXCM for engaging in fraudulent and misleading solicitations. Moreover, CFTC has ordered FXCM and CEO Drew Niv to withdraw from the CFTC’s regulation.

CFTC forces FXCM US Forex market exit

FXCM was the top market share retails Forex broker in the US. The company was registered with CFTC as a Futures Commission Merchant and Retail Foreign Exchange Dealer. FXCM has been offering retails customers the access to over-the-counter (OTC) Forex markets via a proprietary technology platform. Moreover, the company has been acting as the counterparty in transactions with its retail customers, where the customers were able to buy one currency while selling another.

Specifically, the official Order from the CFTC lists charges against FXCM, its parent company FXCM Holdings, LLC (FXCM Holdings), and two members of the group, Drew Niv, and William Ahdout. Furthermore, the order states that in the period from September 4, 2009, to at minimum 2014, FXCM has been engaging in fraudulent solicitations of the retails customers. Reportedly, the company was hiding its relationship with its most important market maker.

Related: See AtoZ Forex Approved Forex Brokers

Additionally, the US regulator found that FXCM has provided false information about its “No Dealing Desk” platform. The company claimed that the platform had no conflicts of interest with its customers. However, the FXCM, FXCM Holdings, and CEO Drew Niv are found collectively responsible for FXCM misrepresenting statements about its relationship with the market maker to the National Futures Association (NFA).

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As a result of the above-mentioned breaches, the CFTC has imposed a $7 million civil monetary penalty on the FXCM. Moreover, the regulator required the Forex company to desist order from further breaches of the Commodity Exchange Act and the CFTC Regulations. Also, FXCM, Mr. Niv, and Mr. Ahdout agreed to withdraw from CFTC registration and never apply for the US regulation again. Following the announcement, the firm did not admit nor deny the CFTC’s charges.

FXCM sells its US accounts after CFTC Order

In addition, after CFTC’s official Order has been published, the FXCM has decided to sell its US accounts, as the company is forced to leave the US market. The firm has published an official announcement, where it outlined the information for its US clients.

The FXCM will be selling its US accounts to the company under the name GAIN Capital Holdings. The firms have inked a non-binding letter of intent for the transaction. The agreement is awaiting the regulatory approval by the US authorities and the ultimate consensus between companies.

Reportedly, both firms are currently in the process of working on the transaction agreement.

The FXCM and GAIN will publish the detail of the deal in the next days, according to the market experts. Gretchen L. Lowe, the Principal Deputy Director and Chief Counsel of the CFTC’s Division of Enforcement, has stated the following:

“Full and truthful disclosure to customers and honest discourse with self-regulatory organizations such as NFA are vital to the integrity and oversight of our markets. Today’s actions demonstrate that the CFTC is committed to protecting customers from harm in the markets it regulates.”

NFA FXCM Complaint: misleading information

What is more, as the CFTC forces FXCM US Forex market exit, the NFA has also required that FXCM founders William Ahdout and Dror (Drew) Niv, as well as FXCM, will leave the NFA regulation, thus facing a permanent ban. The above-mentioned orders will be effective as of February, 21st, 2017.

The official document from the NFA states that the regulator is charging William Ahdout and Dror (Drew) Niv and FXCM itself on six counts. As the complaint by the NFA states, the company, and its principles have failed to properly supervise FXCM and its staff. The key issue in the NFA’s complaint reflects the advertisement of the FXCM’s “no dealing desk” platform as a superior to the firm’s competition. The latter was stated to employ “dealing desk” execution.

Following on this, the dealing desk model has been promoted as a market making model, with the FXCM taking the other side of the clients’ trade. The “no dealing desk” model was presented as straight-through processing (STP) of orders through various liquidity providers.

NFA exposes FXCM relationship with Effex Capital

As the NFA’s complaint states, the FXCM’s “no dealing desk” model was directing orders to a “dealing desk” model. The liquidity provider (LP) Effex Capital was servicing the latter platform. The FXCM has presented Effex Capital as an independent counterpart. Yet, the document states that FXCM was supporting and administering Effex Capital.

The NFA mentions that the FXCM has received almost $77 million in rebates from Effex in the period between 2010 and 2014. As CFTC forces FXCM US Forex market exit, the official complaint from NFA also stresses:

“In cases where the price at the end of the hold timer had moved against Effex and in favor of the customer, Effex would reject the trade. On the other hand, of the price had moved in favor of Effex and against the customer, Effex would execute the trade and give the client negative price slippage.”

The regulator highlights that the FXCM not only misled its own clients about the practices with Effex, but also tried to hide the information from the NFA.

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