Shares of US listed foreign exchange broker FXCM Inc. (NYSE:FXCM) are trading higher by almost 50% in the aftermath of the life-line loan which the company received from Leucadia. While the terms of the loan, which were unveiled late Monday, are very stringent, trading today resumes with the stock market re-evaluating the position of the firm.
Yesterday’s extraordinary move in the share price of the company came in the aftermath of the Swiss National Bank’s decision last Thursday, which prompted FXCM Inc. (NYSE:FXCM) to seek a life-line loan in order to remain compliant with regulations and continue operating properly.
Trading of shares of FXCM Inc. (NYSE:FXCM) was halted last Friday after the firm announced $225 million in losses and, in pre-market trading, the company lost more than 80% of its value.
No Universal Approach Towards Negative Account Balances
According to information obtained by Forex Magnates reporters from sources close to the company, the firm is handling the negative account balances issue on a case-by-case basis, with FXCM’s trade audit team busy with examining the fills of every negative account balance.
Forex Magnates reporters have contacted the company enquiring about the way FXCM was handling negative account issues in the aftermath of the Swiss black swan, but at the time of publication the company hasn’t replied.
Following is an excerpt detailing the terms and conditions of FXCM related to negative account balances:
A number of the Company’s platforms are designed with safeguards to prevent the Client from incurring a negative balance due to trading activity. Still, those safeguards may fail making it possible for the Client to incur a negative balance while trading. If the Client incurs a negative balance through trading activity, the Client should inform the Company’s trade audit team. The Company will evaluate the inquiry and credit the Client’s Account with the amount of the negative balance where the debit was due to trading activity. The provisions of this clause 30.3 shall not apply:
(a) in the case of a Force Majeure Event provided for in clause 25 of these Terms;
(b) where the Company determines, in its sole and absolute discretion, that the negative balance is unrelated to the Client’s trading activity (for example, where the debit relates to any fees or charges owed by the Client to the Company under these Terms);
(c) where the negative balance is connected to or a result of, either direct or indirect, the Client’s breach of any provision within these Terms;
(d) if the Client is classified as an Eligible Counterparty;
(e) if the Client has entered into a white label or omnibus account relationship with the Company;
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(f) where the Client deals with the Company through a credit arrangement provided by the Company;
(g) where the Company utilises assets held by it or its Nominee for the Client’s behalf as Margin; and/or
(h) to Transactions in Equities, Futures Contracts, Options Contracts, CFD Contracts where the Underlying Instrument is a Security, and/or any other products offered by the Company from time to time that are traded on a Market.
The “Force Majeure Event” clause doesn’t prevent clients from being asked to pay for their negative account balances. Every trader application contains data about the annual income and the net worth of the client. While no client is guaranteed to have entered the information in earnest, it gives the brokerage a point to start from.
Following is the above-mentioned Clause 25 from the terms and conditions agreement signed by every customer of the brokerage:
25.1 Since the Company does not control signal power, its reception or routing via Internet, configuration of the Client’s equipment or reliability of its connections, the Company shall not be liable for any claims, losses, damages, costs or expenses, including attorney’s fees, caused directly or indirectly, by any breakdown or failure of any transmission or communication system or equipment or computer facility or trading software, whether belonging to the Company or its Associated Companies, the Client, any Market, or any settlement or clearing system when the Client trades online (via Internet) or for any cause preventing the Company from performing any or all its obligations, any act of God, war, terrorism, malicious damage, civil commotion, industrial acts, any Exceptional Market Event, or acts and regulations of any governmental or supra national bodies or authorities which in the Company’s opinion prevent an orderly market in relation to the Client’s Orders (a “Force Majeure Event”).
25.2 Upon the occurrence of a Force Majeure Event, the Company shall use commercially reasonable efforts to resume performance and it may give the Client written notice that a Force Majeure Event has occurred. Upon occurrence of a Force Majeure Event, all of the Company’s obligations under these Terms of Business shall be immediately suspended for the duration of such Force Majeure Event. Additionally, the Company may take any one or more of the following steps:
(a) alter normal trading times;
(b) alter the Margin Requirements;
(c) amend or vary these Terms and any Transaction contemplated by these Terms, insofar as it is impractical or impossible for the Company to comply with its obligations;
(d) close any or all Open Positions, cancel instructions and Orders as the Company deems to be appropriate in the circumstances; and/or
(e) take or omit to take all such other actions as the Company deems to be reasonably appropriate in the circumstances having regard to the Clients positions and those positions of the Company’s other customers.