Legacy of FXCM

After a shocking investigation of CFTC around the activities of FXCM, the company was forced to leave the American jurisdiction.

The regulator also demanded that the interests of FXCM customers be taken into account during this transitional period. Therefore, the NFA was committed to facilitating the transfer of FXCM’s customer base to another US company.

After losing business in the US, FXCM remained working in Europe, where they still have a valid license from FCA (License No. 217689). Therefore, the sanctions imposed by the CFTC affected only the American business of the company.

Then, we should expect increased interest from European regulators, who can get rid of the scandalous company altogether. For today in Europe tightening continues, which pushes regulators to radical measures.

So what happened to FXCM?

The American regulator “caught” FXCM on their public marketing promises to work exclusively within the “agent model”, that is, as an intermediary (FXCM connects the client and the liquidity provider directly, for which the company receives a commission). However, the investigation revealed that the liquidity provider was an affiliated FXCM company.

Unfortunately, this decision of the CFTC can not be called positive for the industry, because:

1. FXCM was punished only because it deceived customers in its marketing materials (if he wrote as it is, then there would not have been an investigation).

2. The CFTC did not indicate in its report that all US brokers should work under the agency model. (Actually allowing B-book as the norm for the industry)

3. The CFTC did not in any way define the instrument by which the transactions were carried out (that is, whether it was a derivative or a rate).

In fact, everything the regulator did was just reveal the obvious things, but he did not even deign to clarify if all the funds flowed into the affiliated company FXCM, then why did the company incur such losses during the Swiss franc (early 2015)? There are only two options for answering this question:

1. FXCM sold its b-book liquidity (yes it is possible, unfortunately) to licensed companies against which it played, but underestimated the risks it lost, because of what it had “unforeseen” obligations.

2. Banal money laundering through his pocket vendor, and the “black swan” was just an ideal option for writing off such “losses”.

No one knows the exact answer to the question, but because of this investigation, shareholders already have shares in FXCM (the company is publicly traded on the NYSE), as in their reports to investors, they published the following:

And this means a deliberate deception of their investors, which can lead to suits on their part. In the US, very strict rules for reporting by public companies, which in turn gives reason to flood FXCM with claims.

American heritage of FXCM

February 27, 2017 GAIN reported receiving 47,000 accounts with a total assets of about $ 142 million. It should be noted that due to the segregation of funds in the US, client money could not suffer in any way because of the regulator’s decision to expel the company.

To migrate FXCM clients, GAIN took two steps:

1. Creation of a microsite for former FXCM clients with information about the process of transferring and learning about products and services of FOREX.com.

2. GAIN conducted the integration of TradingView charts on its FOREX.com platform, which expanded the active program Trader forex.com in MetaTrader4 to (MT4) and NinjaTrader.

Glenn Stevens, CEO of GAIN Capital commented on this event on the pages of Leaprate:

We are very pleased with the successful migration of accounts this weekend. In a short period with the help of NFA and CFTC, we have successfully transferred 47,000 accounts to Forex.com. Our focus in this process is aimed at ensuring that all integration operations are painless, and that clients receive the support they need.

After the acquisition of GAIN by the US client base FXCM, the company became the largest player in the Retail Forex in the United States, with more than 70,000 customer accounts. If you summarize the entire business of GAIN Capital including work in other jurisdictions, then 140,000 clients or more than $ 1.5 billion of assets are exiting.

What will happen next with FXCM?

In such situations, it is difficult to be a predictor, since the issue of supervision is decided by the regulator on the basis of subjective factors, since there are no clear standards of work. Therefore, it is difficult to say for sure whether such a result is waiting for the company in Europe, but this does not mean that it is worthwhile to sit on the spot (most rationally, to close the accounts in the company, for new investigations are possible).

The main danger for FXCM now, this is an investigation by the FCA, whose mandate obliges to protect the consumer from fraud and unfair play of financial companies. And since in the US FXCM worked with a “pocket” liquidity provider, it is quite possible that such a scheme was used in other jurisdictions. Even more, FXCM sold liquidity in Europe, which means it could quite act as a pocket vendor. Therefore, do not be surprised if we are waiting for the “second series” with a British accent.

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