By Darrell Martin
The US Commodity Futures Trading Commission (CFTC) is an independent agency of the US government that was created in 1974 and regulates futures and option markets. Its mission is to foster open, transparent, competitive and financially sound markets. It aims to protect market users and their funds, consumers and the public from fraud, manipulation and abusive practices related to products that are subject to the Commodity Exchange Act.
What if an organization is found to be abusive?
On February 6, 2017, the CFTC issued a press release detailing its findings against Forex Capital Markets, LLC (FXCM), its parent company and two founding partners, Dror (Drew) Niv and William Ahdout. They found that between September 4, 2009 through at least 2014, FXCM engaged in false and misleading solicitations of FXCM’s retail forex customers by concealing its relationship with its most important market maker that consistently “won” the largest share of FXCM’s trading volume. As such, they were taking positions opposite its retail customers.
FXCM also made false statements to the National Futures Association (NFA). Because of the CFTC’s findings, FXCM, its parent company and the two founders must pay a $7 million civil monetary penalty and cease and desist from further violations of the Commodity Exchange Act and CFTC Regulations. They must withdraw from CFTC registration and may never seek to register again.
“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,” said Gretchen L. Lowe, Principal Deputy Director and Chief Counsel of the CFTC’s Division of Enforcement. “Today’s actions demonstrates that the CFTC is committed to protecting customers from harm in the markets it regulates.” (See Press Release)
Who is FXCM?
In an email sent to investors owning stock in FXCM, Jaclyn Sales, Vice President, Corporate Communications, explained that FXCM Inc. (NASDAQ: FXCM) is a publicly traded company which owns 50.1% of FXCM Group, LLC (FXCM Group). FXCM Group is a holding company of Forex Capital Markets with several companies worldwide, including Leucadia National Corporation, which is a multi-billion dollar diversified holding company, engaged through its consolidated subsidiaries in a variety of businesses. FXCM provides online foreign exchange (FX) trading, CFD trading, spread betting and related services.
What happens next?
FXCM will be withdrawing from business in the US. They have signed a non-binding letter of intent with GAIN Capital Holdings, Inc. GAIN will purchase FXCM’s US customer accounts. The transaction is subject to regulatory approval. There will be no changes to FXCM customers outside of the United States. Withdrawing from this business will free approximately $52 million in capital. Proceeds from the account sale and the release of capital will go toward repaying FXCM’s loan from Leucadia National Corporation, which is also part of the FXCM Group.
For the interim period, FXCM will continue to service its US customers. They want the transition to GAIN’s retail brand, FOREX.com to be orderly, expeditious and seamless.
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It is always best to protect funds when trading. Add the protection of trading with a CFTC regulated exchange. Free trading education is available at www.apexinvesting.com.