NFA Issues IBFX With $600,000 Penalty For FX Execution Reporting Inadequacies

Signaling a return to work for the NFA, IBFX has been censured for failing to report trade execution data between

As signs of the US federal government shutdown coming to an end begin to emerge, the National Futures Association (NFA) has acted on a complaint which was filed yesterday, and issued Interbank FX (IBFX) with a $600,000 fiscal penalty.

Execution Data Reporting Irregularities

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The NFA’s Business Conduct Committee issued a decision yesterday to impose the monetary penalty on Monex Group Subsidiary IBFX as a result of failures by the firm to report certain trade execution data to FORTRESS during most of the calendar year of 2011.

FORTRESS is an acronym for Forex Transaction Reporting Execution Surveillance System, which is the NFA’s central reporting system, in which all members are duty bound to submit data relating to all aspects of trade execution in order that it can be referred to in cases of necessity, such as compliance inspections or customer complaints.

The Business Conduct Committee also found that during an NFA investigation focused on IBFX’s activities throughout 2010 and 2011, the NFA was unable to fully evaluate the firm’s trade execution practices due to recordkeeping deficiencies at IBFX.

Trade Warehousing

The complaint which was filed yesterday details that prior to December 2011’s acqusition of IBFX by Monex Group’s US subsidiary TradeStation, the company filed a request to withdraw from NFA membership.

In the months leading up to this, the NFA began an examination of IBFX, commencing on September 12 that same year, which later expanded into an investigation of the company’s trade execution practices. The examination initially focused on IBFX’s activities for the two-year period of 2010 and 2011, relating to price movements which occur between the time at which an order is placed by a customer and executed by the company.

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As a result of this particular investigation, inadequacies in recordkeeping were discovered and the NFA was unable to fully evaluate the company’s trade execution practices.

According to the material detailed in the NFA’s complaint, IBFX used two models to execute its retail FX transactions. One was STP, and the other being a practice known as warehousing.

Warehousing occured whereby IBFX acted as the counterparty for trades whose value was less than the notional volume threshold level lnterbank had established for STP trades. Interbank would aggregate the “warehoused” trades for risk management purposes and earn revenue from the bid/ask spread and from beneficial market moves that the aggregated “warehoused” trades experienced.

For the vast majority of trades, IBFX would warehouse the trades, and for the remainder of trades, IBFX used the STP model, which accounted for a very small percentage of the firm’s trading volume and applied when the contract size was at or over the specific notional volume threshold set by the firm for its warehouse trades.

Under the STP model, after a customer clicked on the bid or offer price, which included lnterbank’s predefined markup, IBFX would fill the customer’s order but only after the firm had filled the offsetting position (contra-fill) with a liquidity provider.

The NFA attempted to analyze IBFX’s execution data on all STP transactions from January 2010 up to the time the firm was acquired in late 2011. However, while the firm ultimately was able to provide historical markup information since June 2010, the NFA was unable to complete its analysis because historical markup data prior to June 2010 was not available, and for certain types of STP transactions (split fill transactions) since June 2010, Interbank’s record of historical markup changes could not be reconciled to specific trades. As a result, NFA was unable to analyze all of the firm’s STP transactions.


Specifically, since February 4, 2011 the NFA required IBFX, in line with all NFA members, to submit electronic reports to NFA through the FORTRESS system that contained, among other data, specific records of trades executed on a daily basis, including the contra-fill price for trades executed via STP. However, the information IBFX provided to NFA through the Fortress system was incomplete, and failed to report contra-fill prices throughout much of 2011.

In summary, this led to a $600,000 penalty being applied to the firm, upon which the NFA publicly confirmed yesterday that it had received agreement to settle on the same day by IBFX.

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