FXCM Inc. (NYSE:FXCM) has issued a statement on a recently levied complaint yesterday which featured alleged violations under the Commodity Exchange Act (CEA), as stipulated by the US’ Commodity Futures Trading Commission.
Just yesterday, the CFTC filed a civil enforcement action against foreign exchange (FX) brokerage FXCM Inc – the nature of the action dealt with capital requirements, namely FXCM’s failure to meet them, also guaranteeing against customer losses and failure to report its undercapitalization in a timely manner.
The time period which the CFTC references dates back to January 2015, when the Swiss National Bank (SNB) convulsed currency markets with a snap decision to abandon its currency peg with the euro. The subsequent aftermath left numerous brokers facing upheaval, which arguably redefined the playing field moving forward.
For its part, FXCM indicated that it was “very disappointed by the CFTC’s decision to file this complaint and attempt to punish FXCM who, like other market participants, was a victim of the SNB Event.”
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The SNB event did in fact impact a litany of world markets as well as FXCM, which by extension affected its customer base – on January 15 2015 alone, FXCM customers lost approximately $225 million. The losses at FXCM resulted in a one-day regulatory net capital shortfall, prompting it to notify both the CFTC and the National Futures Association (NFA). Ultimately, FXCM was successful in its attempts to shore up its capital shortfall via a $300 million loan from Leucadia National Corporation.
We could not be more disappointed that the CFTC has decided to pursue an undercapitalization violation claim against FXCM
“Given those facts, we could not be more disappointed that the CFTC has decided to pursue an undercapitalization violation claim against FXCM. Such a claim under these circumstances is unprecedented and unwarranted. We are also disappointed in the CFTC’s intimation that the Company’s “seatbelt” system contributed to the FXCM’s undercapitalization during the SNB Event. To the contrary, the Company’s seatbelt system prevented FXCM and its customers from suffering additional trading losses that day.”
The statement went on to say: “Equally unwarranted is the CFTC’s claim that the Company did not timely notify the CFTC of its net capital shortfall. As noted above, the regulators were fully apprised of the capital shortfall and, within hours of the SNB Event, the CFTC and the NFA were on site at FXCM’s offices.”
“We also see no basis for the CFTC’s claim that the Company improperly guaranteed customers that they would not lose money. To the contrary, FXCM repeatedly represented to and warned its customers of the significant risks of trading FX and that such trading is appropriate only for individuals who can assume risk of loss in excess of their investment and margin deposit,” the statement continued.