FXCM Inc Unveils Revised Terms of Leucadia Agreement, Client Funds Down 25%
Details about the company’s dealings, reveal $332 mln fewer client funds in custody and an increased interest rate cap on
According to a regulatory filing made by FXCM Inc (NYSE:FXCM) with the U.S. Securities and Exchange Commission, the company has revised some key terms of its loan agreement with Leucadia. After the firm reported it had lost close to 2.6% of its clients in the aftermath of the Swiss franc debacle, when compared to the last reported figure in December last Friday, the details about client equity show a more complete picture of the situation.
The most notable change in the terms of the Leucadia National loan agreements with FXCM Inc (NYSE:FXCM) is the increase of the annual interest rate cap from 17% to 20.5%.
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In addition in the case of selling assets or equity of FXCM, the deals will be made for cash only. There is a clause which is most interesting revealing an on time cash payment to Leucadia if there is a “change in control” at FXCM Inc (NYSE:FXCM).
This clause seems to be securing Drew Niv’s position at the helm, and the commitment of Leucadia to go all the way throughout the restructuring process which inevitably is going to occur at FXCM Inc in the coming months.
The company is able to repay the loan at any time without incurring a penalty.
At the same time, client equity has dropped more materially with the company unveiling that client funds held in segregated accounts are totaling about $1 billion last Friday. This is materially lower from the latest number which the company published in its quarterly report at the end of September.
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The figure stood then at $1.332 bln, so the drop represents about 25% decline. Granted the bulk of this sum is most likely a direct results of balances going deeply into negative territory, while in the aftermath of the turmoil and before the announcement of a life-line deal with Leucadia, a number of clients could have submitted withdrawal requests for their funds.
In any case, the Swiss franc debacle puts the total amount of client deposits at FXCM back to 2011 levels.
An SEC 4-K form filing, revealed that former FXCM Inc Chief Dealer, Michael Romersa, has sold his last 363,807 shares on the 22nd of January in the aftermath of the release of the details of the agreement between FXCM and Leucadia.
Client Negative Balances Developments
While there are reports that some clients are getting their negative balances cleared by FXCM’s team, this comes as no surprise in light of the company’s official position that it will be treating negative balance issues on a case by case basis.
Despite what some pundits may claim, the company is within its full right to treat the situation as force majeure and applying the legal clause mentioned in the client agreement.
The Swiss National Bank’s move two weeks ago was an unprecedented event in the world of G7 currency trading. Even the collapse of the British pound out of the European Exchange Rate Mechanism pales in comparison to what happened with the Swiss franc on the 15th of January.
“While there are reports that some clients are getting their negative balances cleared by FXCM’s team, this comes as no surprise in light of the company’s official position that it will be treating negative balance issues on a case by case basis.” Well clearly it has not been the case since all of the retail clients in France have been confirmed their negative balances to be reset to zero. I believe it is the same for German customers. FXCM has no official position on such matter and doesn’t work on a case by case basis. The absence of official communication… Read more »
Completely concur PP. No chance for FXCM to recover funds from clients.
@PP, you beat me to it. the Force Majeure argument is weak. And guess what, if you claim that, then it would have to work both ways. In other words, the trader can then say “Hey, how could I liquidate my position? I couldn’t because of the same Force Majeure incident that affected you. I used your negative balance protection as an additional risk protection, so you cannot hold me responsible for these force majeure losses for the same reason” I have a funny feeling a class action lawsuit is in the mix. The reason why FXCM is not commenting… Read more »
I think FXCM couldn’t recover funds from clients, but i heard of customers who have multiple accounts who would have taken the money from the sub-account to cover the losses of the negative account. Contractually I think fxcm has no chance of recovering the money legally.
I hope that the policy by fxcm to pay off the negative balances continues.
It is a guarantee for traders.
I agree with just about all the above, except I have reservations about the ‘unfair business practices’ comment above. This is hardly a business practice instituted by FXCM, but one enforced my regulators in different jurisdictions. I inquired of OANDA for their policy on negative balances, since on one hand their European client agreement said clients where protected from negative balances, yet their post-SNB press release effectively said they were forgiving negative balances out of the kindness of their hearts! This is what they said in response: ‘Correct, we stand by our policy of forgiving negative client balances, which is… Read more »
Only a moron would continue to trade with FXCM or trust their quotes. If you check FXCM website for 2014 + 2013 revenue , they won’t be able to pay back this loan … which means, their clients have to pay instead!
This company is over , and they are pretty much in default ..
“I agree with just about all the above, except I have reservations about the ‘unfair business practices’ comment above. This is hardly a business practice instituted by FXCM, but one enforced my regulators in different jurisdictions.” hum.. looks to me that FXCM took the decision to forgive negative client balances themselves. Regulators might have put some pressure on them, but only them are in control and responsible for their acts.. Not sure about the “unfair Business practices” but treating clients of a same company differently sounds like potentially illegal and might fall under the scope of the FCA if not… Read more »
Guys don’t believe in segregated funds BS on FXCM take your money and RUN this broker will be out of business very soon. Especially when you treat your clients as dumb idiots. They had to honor negative balance protection immediately after event or better yet be ready for this event with risk management. If they will chase retails with negative balances today despite clear policy not to, why would they return your deposits tomorrow?
think and withdraw!