CMS FX might have ceased being a forex broker and transferred clients to Gain Capital, but it’s not out completely. On May 19th, 2011, the NFA Business Conduct Committee charged CMS with failing to implement an adequate business continuity and disaster recover plan, as well as failing to supervise its electronic trading systems.
The first charge stems from the fact that CMS operated from November 2009 until December 2010 with no back-up facility for its trading servers. The second charge arose because CMS failed to notify the NFA about platform failures within 24 hours, as mandated by the NFA. In the following five instances, it failed to give notice to its customers or NFA:
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- June 20, 2010: The VT platform was unavailable for seven hours and all customers who utilized the VT platform were either unable to log on or were kicked out of the VT system. (CMS never ran a query to determine the exact number of affected customers.)
- November 26, 2009: The VT platform was unavailable for just over two hours and approximately 200 customers were either unable to log on or were kicked out of the VT system.
- January 24, 2010: The VT platform was unavailable for just under two hours and 700 customers were either unable to log on or were kicked out of the VT system.
- April 18, 2010: The VT platform was unavailable for 34 minutes and 550 customers were either unable to log on or were kicked out of the VT system.
- April 23, 2010: The VT platform was unavailable for eighteen minutes and 280 customers were either unable to log on or were kicked out of the VT system.
Platform failures are not uncommon in the forex trading industry. The 24-hour nature of the market and high trading volume makes platforms more susceptible to failure. To give you an idea on the trading volume: A trader in the US can not day trade in his/her equities platform unless they have $25,000. The same trader can get in and out of a trade every few seconds with no restrictions with $5000 at his forex broker. Does that mean it’s acceptable for a broker to run their systems without backup and not report failures to the NFA? No, it’s not. The brokers have an obligation to their clients. While the monetary fine and other penalties have not yet been decided, it remains to be seen if CMS’s decision to reduce costs by not using a backup facility will end up costing it even more. This complaint also raises the issue of cost of doing business in the US. The NFA requirements have already reduced the number of brokers in the US to 12. Such actions by the NFA will lead to further consolidation in the industry.