FXCM Japan may face action by the local regulator

Japanese FSA just issued a public statement about FXCM Japan’s trading platform and business conduct and is considering whether to

Japanese FSA just issued a public statement about FXCM Japan’s trading platform and business conduct and is considering whether to take an action against the company. The action can be stoppage of service for certain period of time or a warning.

FSA blames FXCMJ for:

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FSA observes a serious problem with the management and the operational status of FXCMJ’s systems. FSA notes that contingency plans for system failure do not exist and that the FXCMJ’s staff doesn’t have the expected understanding of the systems.

FXCMJ’s systems failed several times and FSA is not satisfied with how these failures were handled. FSA claims FXCMJ didn’t research the cause of these problems and lacks the understanding as to why they happened.

FSA claims that FXCMJ is not prepared to take action if such problems happen again in the future.

There is a problem with pricing with execution price different from the actual price (FSA may be referring to slippage here).

FSA claims that once these problems occur FXCMJ doesn’t handle the situation with customers well enough. If customer complains then FXCMJ takes action but if they don’t then no action is taken.

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FSA also claims that for 55 customers FXCMJ didn’t handle the margin call well by not implementing it when it was due.

Update: FXCM posted the following post on its Japanese website

Regarding the Recommendation of Administrative Disposition by the Securities and Exchange Surveillance Commission, June 19th

The Securities and Exchange Surveillance Commission (“the Commission” here below), based on the investigation they made on FXCM Japan Securities Co. Ltd. (“our company” here below), has recommended to the Prime Minister and the Director General of the Kanto Regional Financial Bureau to impose upon our company an administrative disposition.

Although our company has been diligent on managing system risks, the Commission concluded after the investigation started on November 16th, 2011 that there is a grave problem regarding system management and implementation, and are equivalent to the conditions defined in Article 123(i)(14) of the Cabinet Office Ordinance regarding Financial Instrument Businesses (“situations where data management is not up to minimal standards required for financial instrument transactions”), defined in Article 40(ii) of the Financial Instruments and Exchange Act. Further, it has been concluded that there is a grave problem regarding our company’s handling of client relations on various system failure issues, and this coincides with Article 51 of the Financial Instruments and Exchange Act, as a situation where it is “necessary and appropriate for the public interest or protection of investors, with regard to a Financial Instruments Business Operator’s business operation or the status of its property.”

Also, the same investigation declared that the continuation of FX transaction contracts without getting the clients to deposit the required amounts of clearing margin for those that needed deposits, per diem, are equivalent to the situation defined in Article 117(i)(28) of the Cabinet Office Ordinance regarding Financial Instrument Businesses based on Article 38(vii) of the Financial Instruments and Exchange Act, where a company “fails to regulate an immediate deposit for those that are lacking the required amounts of clearing margin regarding FX derivative transactions for clients whose deposit accounts are below the minimal requirement, per diem at a specific time, and continues to allow FX derivative transaction contracts to take effect.”

Based on these legal circumstances, the Securities and Exchange Surveillance Commission made a recommendation to the Prime Minister and the Director General of the Kanto Regional Financial Bureau regarding the administrative disposition based on Article 20(i) of the Act for Establishment of the Financial Services Agency. We deeply regret any inconvenience this case has caused our clients and concerned parties. We shall accept the severity of this investigation, and will make the effort to strengthen internal management strategies. We thank you for continuing goodwill, and we pledge to do our utmost to full your highest expectations of our company.

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