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SpecTrade

NFA Levies $2,000,000 Monetary Sanction Against FXCM and Orders Refunds to Customers

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For Immediate Release

 

For More Information Contact:

Larry Dyekman (312) 781-1372, ldyekman@nfa.futures.org

Karen Wuertz (312) 781-1335, kwuertz@nfa.futures.org

 

NFA levies $2,000,000 monetary sanction against FXCM and orders refunds to customers

 

August 12, Chicago - National Futures Association (NFA) has issued a Decision imposing a $2,000,000 monetary sanction against Forex Capital Markets LLC (FXCM) in settlement of a Complaint issued by NFA's Business Conduct Committee on August 12, 2011. The Complaint cited FXCM for retaining gains derived from asymmetrical positive price slippage; failing to adopt or carry out adequate procedures to ensure the efficient execution of all customer orders; failing to treat all customers equally when giving price adjustments; failing to adequately investigate suspicious activity in several customers' accounts; and - together with its principal Dror Niv - failing to supervise. FXCM is a Futures Commission Merchant, Retail Foreign Exchange Dealer, and Forex Dealer Member located in New York, New York.

 

In addition to the $2,000,000 monetary sanction, FXCM must credit the accounts of its customers the amount of asymmetrical positive slippage which its customers experienced on their trades from and after June 18, 2008 and provide verification to NFA of these credits. In the future, FXCM is prohibited from engaging in price slippage or margin liquidation practices, as described in the Complaint. FXCM must also enhance existing procedures to ensure efficient execution of customer orders and compliance with NFA's anti-money laundering requirements.

 

The complete text of the Complaint and Decision can be found on NFA's website (http://www.nfa.futures.org).

 

NFA is the premier independent provider of innovative and efficient regulatory programs that safeguard the integrity of the futures markets.

Complaint_ForexCapitalMarketsLLC&DrorNiv_2011_0812.pdf

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NFA levies $2,000,000 monetary sanction against FXCM and orders refunds to customers....

 

Hi SpecTrade,

 

Friday's action from the NFA primarily concerns positive slippage, and I would like to shed more light on how positive slippage with FXCM's NDD forex execution system used to work prior to August 2010 and how it has worked since then.

 

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.

 

It is important to note: By the end of 2010 FXCM enhanced its execution system to offer price improvements on all trades. You may remember from my forum posts last August that I announced positive slippage for limit and limit entry orders on this thread. All orders now eligible to receive positive slippage, and all price improvements are subject to available liquidity.

 

The settlement amount and the client price improvement credit will have no negative impact on FXCM's financial balance sheet because several founding partners of FXCM have reimbursed the company for the credit and the fines. As of June 30, 2011, FXCM Inc. had over $200 million in cash and no debt.

 

FXCM's goal is to have a fair and transparent system, and we are proud to offer an execution system that passes on any price improvements. FXCM has compiled statistics from July 1, 2010 until now to display the percentage of orders positive slipped and negatively slipped, and which orders most frequently experience each. The percentage of orders between positive and negative slippage has been roughly equal.

 

positiveslippagehighlig.jpg

 

 

 

 

And we have broken this down even further to display the number of orders on a monthly basis positively and negatively slipped:

 

positiveslippagestats.jpg

 

 

Limit and limit entry orders are the most likely to experience positive slippage which is why we highlight using limit and limit entry orders in the execution center on our website. You can find even more data on slippage broken down per order type in the complete report here: Slippage Statistics

 

Please let me know if you have any additional questions. I will do my best to answer them as thoroughly as possible.

 

Jason

FXCM

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FXCM's goal is to have a fair and transparent system, and we are proud to offer an execution system that passes on any price improvements.

 

I'm really glad to know that.

 

The percentage of orders between positive and negative slippage has been roughly equal.

 

Percentage, yes. How about comparing the pip amounts of negative vs. positive slippage.

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