NFA takes member responsibility action against FXDD, tries to force it to pay clients $3.3m before guilt is proven

It seems the NFA has been quite busy this week. After destroying GFT, one of America’s most respectable and stable brokers (more

It seems the NFA has been quite busy this week. After destroying GFT, one of America’s most respectable and stable brokers (more details from us in few days), its attention then moved to its favorite target – FXDD. Ever since July 2012, when the NFA lodged its first complaint against FXDD for alleged asymmetric slippage practices, the firm has been very high on its agenda as it was the only broker who actually ‘dared’ to challenge NFA in court. NFA, being the government mandated dictatorship it is, didn’t take this well. The result was another complaint against FXDD this time for allegedly failing to comply with AML procedures. Next step is this MRA which basically is NFA’s method to assert pressure on FXDD and force it to succumb to its complaint – without waiting for court judgement.

FXDD maybe did and maybe did not practice asymmetric slippage however the key point here is that NFA won’t accept any challenge to its authority. If NFA claims you did something wrong – it means you did something wrong and there’s nothing you can do about it. It’s a known fact among US brokers that if NFA complained against you it’s better to settle than try and fight as it will cost you at least double. Since FXDD decided to fight for its innocence it invoked NFA’s rage and now faces an extremely tough business decision – pay $3.3 million to clients which basically means it will admit to being guilty and will then pay additional fine of at least $3-4 million for challenging the NFA OR shut down its business. Government mandated extortion at its best.

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Unfortunately the American public is unaware of how NFA operates but something must change as otherwise NFA will eventually shut this market down completely.

Regardless of the above, NFA also claims that FXDD’s regulatory capital repeatedly fell under the requirements and hence NFA is taking this action in order to make sure FXDD will be able to pay the $3.3 million it may owe clients if it’s found guilty.

When contacted by Forex Magnates FXDD issued the following statement: “FXDD’s capital position is sound and customer funds are not and have never been at risk. Customer trust is at the forefront of everything we do and FXDD has always sought to comply with net capital requirements and maintain excess net capital. FXDD is in compliance with its present net capital requirement of approximately $21m. In fact FXDD’s net capital exceeds this requirement. Throughout this entire process trading operations in the US and abroad have and will continue to operate as normal.

FXDD is committed to full compliance with all pertinent regulations and laws related to its business. FXDD continues to disagree with the NFA on the merits of its complaint. The company will continue to work with the NFA to come to a constructive resolution.”

The NFA Member Responsibility Action:

NOTICE OF MEMBER RESPONSIBILITY ACTION:

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On December 7, 2012, NFA’s Executive Committee issued a Member Responsibility Action (MRA) against FX Direct Dealer, LLC (FXDD), whereby:

1. Prior to the resolution, and during the pendency, of In the Matter of FX Direct Dealer, LLC, NFA Case No. 12-BCC-021 (“BCC case”), FXDD must demonstrate to NFA that it is financially able to make restitution to customers in the amount of approximately $3.3 million for damages allegedly sustained by customers as a result of FXDD’s asymmetrical price slippage practices, as alleged in the Complaint in the above-cited case. In order to demonstrate its ability to make restitution to customers, FXDD is required to deposit – and keep on deposit during the pendency of the BCC case – $3.3 million in a bank escrow account or in an attorney trust account, acceptable to NFA, or post a bond in such amount with NFA. Moreover, FXDD may not consider any funds on deposit in a bank escrow account or attorney trust account as a current asset for purposes of calculating the firm’s capital, as such funds are restricted. FXDD’s obligation, hereunder, shall terminate when all of the following conditions have been met: the BCC case is resolved; there is a final determination of the amount of restitution, if any, that FXDD owes to customers as a result of its asymmetrical price slippage practice; and FXDD fully pays customers such restitution amount, if any, as finally determined.

2. In the event FXDD fails to comply with the requirements of paragraph 1, above, by Noon (CDT) on Friday, December 14, 2012, the following measures will become effective immediately:

a. FXDD shall be prohibited from accepting or placing trades for any customer accounts except for the rollover of currently existing customer positions and/or liquidation of existing customer positions. In taking any action to rollover or liquidate customer positions, FXDD must act in the best interest of its customers.

b. FXDD shall be required to liquidate all positions held in any account for any FXDD principal, employee, or affiliate and is prohibited from initiating any additional positions in such accounts; and

c. FXDD shall be prohibited from distributing, disbursing or transferring any funds, except to existing customers, without the prior approval of NFA. Further, FXDD shall be required to provide notice to NFA of any distribution, disbursal or transfer of any funds to any customer on the same business day that any such distribution, disbursal or transfer occurs. Such notice shall include, at least, the date of the distribution, the name, address and account number of the recipient, identification of the FXDD account from which funds are distributed and to which funds are distributed, and the amount of the distribution.

This action is effective immediately and is deemed necessary to protect FXDD’s customers and former customers who were harmed by FXDD’s asymmetrical price slippage practices and ensure that they receive full restitution from FXDD for the damages they sustained as a result of such practices, which are alleged to total approximately $3.3 million.

The MRA shall remain in effect until the resolution of the BCC case and upon a final determination of the amount of restitution, if any, that FXDD owes to customers as a result of its asymmetrical price slippage practices.

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