FXCM is being forced to withdraw from CFTC regulation after its latest settlement, also facing a permanent NFA ban.
The U.S. Commodity Futures Trading Commission (CFTC) has just issued an order against Forex Capital Markets, LLC (NASDAQ:FXCM), settling charges with the foreign exchange (FX) brokerage for $7.0 million in a civil monetary penalty for engaging in false and misleading solicitations. As such, the group’s CEO Drew Niv and FXCM will be required to withdraw from CFTC’s regulation, per a regulatory filing.
In particular, the CFTC Order outlined charges against Forex Capital Markets, LLC (FXCM), its parent company, FXCM Holdings, LLC (FXCM Holdings), as well as the two paramount members of the group, Drew Niv, and William Ahdout. The order finds that between a period lasting from September 4, 2009 to at least 2014, FXCM engaged in false and misleading solicitations of FXCM’s retail FX customers by concealing its relationship with its most important market maker.
An official announcement from the company issued to detail the sale of FXCM’s US accounts reads: “The named FXCM entities and principals neither admit nor deny the allegations associated with the settlements.”
In addition, the CFTC asserted that FXCM had misrepresented that its “No Dealing Desk” platform had no conflicts of interest with its customers – FXCM, FXCM Holdings, and CEO Drew Niv were collectively responsible for FXCM making false statements to the National Futures Association (NFA) about its relationship with the market maker.
Consequently, a collective $7 million civil monetary penalty was levied as well as a cease and desist order from further violations of the Commodity Exchange Act and CFTC Regulations. Furthermore, FXCM, Mr. Niv, and Mr. Ahdout agreed to withdraw from CFTC registration, never to seek to register with the CFTC. Per the order and subsequent settlement, FXCM did not admit nor deny the charges.
FXCM is currently the largest Retail Foreign Exchange Dealer (RFED) in the US, with an estimated market share of approximately 34.0% in December. It is unclear what the fallout will presently be for the US FX market following the CFTC order. The shakeup could prompt a Jefferies/Leucadia takeover, given the company’s existing financial obligations and past deal with Leucadia in the aftermath of the Swiss National Bank (SNB) crisis.
The news also comes during after hours trading in the US – prior to the enforcement action, FXCM’s share prices (NASDAQ:FXCM) had already been trading in range of its 52-week low of $6.65, having closed at $6.85 Monday.
According to Gretchen L. Lowe, Principal Deputy Director and Chief Counsel of the CFTC’s Division of Enforcement, in a recent statement on the order, “Full and truthful disclosure to customers and honest discourse with self-regulatory organizations such as NFA are vital to the integrity and oversight of our markets. Today’s action’s demonstrates that the CFTC is committed to protecting customers from harm in the markets it regulates.”