FXCM in Turmoil, China Attacks Bitcoin and Turkey’s War on Leverage – Best of the Week

During the past week we’ve seen another episode of US market consolidation and harsh regulatory moves.
Photo: Finance Magnates

The previous week brought us more unexpected turmoil for the foreign exchange trading industry. A surprise announcement about FXCM’s business practice in the US caused havoc for shareholders as a $7 million fine was imposed on the company.

More Turmoil at FXCM

FXCM is the latest brokerage to exit the US market. The company’s CEO Drew Niv along with William Andhout have been banned from the industry after an order from the US Commodity Futures Trading Commission (CFTC).

This latest industry drama came due to charges from US regulators that FXCM didn’t act in the best interests of its clients by internalizing its ‘non-dealing desk’ operation via a third party under the broker’s control.

GAIN Gaining Market Share

GAIN Capital stepped in to take over FXCM’s retail business in the US. In the meantime FXCM’s post-SNB creditor Leucadia National is facing an increased risk to its investment. The prospects for more investigations against the broker and its management from other regulatory authorities around the globe may further affect its business.

Overnight, GAIN Capital became the biggest retail FX brokerage in the US via its FOREX.com brand. The company acquired the US clients of FXCM for up to $500 per account.

CySEC Getting Stricter

The Cyprus Securities and Exchange Commission (CySEC) took another step in its efforts to make the financial services providers under its supervision more strictly adhere to its guidance. In its latest circular on marketing obligations, the Cypriot regulator addresses outsourcing of such services, pointing out that CySEC regulated brokers are required to operate their sales and marketing divisions from the broker’s head office or from another EU-member country.

The change appears to be directed towards Israeli brokers and companies that have been outsourcing activities to the Far East in their efforts to target clients from the region.

China vs Crypto Reloaded

China launched a crackdown on Bitcoin exchanges, ultimately forcing them to suspend withdrawals in Bitcoin and Litecoin. Chinese yuan withdrawals remained unaffected with the end result from the ban causing only hourly volatility.

Chinese authorities are particularly keen on controlling the flows of capital to and from the country. A big number of transactions in virtual currencies are linked to Chinese residents attempting to transfer their savings outside of the country.

Turkish Delight

Another emerging market, Turkey, introduced a draconian cap on leverage, and a high floor for minimum deposits. The country’s authorities acted very decisively by decreeing that retail brokers in the country can no longer provide to their clients a leverage ratio higher than 1:10.

The sudden changes were not discussed with the industry in Turkey. The chief regulators also introduced a floor for minimum deposits at about TRY 50,000 ($13,500). Industry insiders fear that only a handful of clients will stick to retail FX after the changes.

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