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FXCM Inc.

Company type	Public Company
Traded as	Nasdaq: GLBR
ISIN	US3026931069
Industry	Financial Services
Founded	1999 (1999)
Headquarters	New York City, United States
Key people	Drew Niv, former CEO and Co-founder
Services	Financial broker, foreign exchange
Number of employees	804
Website	hide

Forex Capital Markets, better known as FXCM, is an online foreign exchange market broker formerly based in the United States currently undergoing regulatory difficulties. On February 6, 2017 the firm agreed to pay a $7 million penalty to settle a suit from the U.S. Commodity Futures Trading Commission (CFTC), withdraw its CFTC registration, and agree not to re-register in the future, effectively banning it from trading in the United States. Three top managers have resigned under regulatory pressure and the firm has changed its name to Global Brokerage Inc., effective January 27, 2017.

An employee of Leucadia National Corp, which holds a major equity stake in the company, has been appointed chairman of the FXCM board. The staff of FXCM's London operation have been told to seek other employment, according to unnamed sources cited by Reuters, though, as of February 24, 2017, the firm appears to be still trading in the United Kingdom, Europe, and Australia.

Its U.S. accounts are being sold to Gain Capital. About 40,000 customer accounts are expected to be sold at about $375 each.

The company provided services through its own online trading platforms and through third party platforms such as MetaTrader 4. FXCM allowed retail and institutional clients to speculate on global foreign exchange markets in what is known as "margin forex trading". Outside the US, FXCM also provided trading in contract for difference (CFDs) on major indices and commodities such as gold and crude oil.

Following a large increase in the price of Swiss francs on January 15, 2015, the company announced that it may be "in breach of some regulatory capital requirements." On January 16, FXCM announced that it had secured a $300 million loan with a 10% coupon from Leucadia National Corp in order to meet its capital requirements. On January 20 further terms of the loan were released, showing that the coupon rate might rise to 17% and that asset sales and other limitations were imposed. Citigroup analysts quoted by Bloomberg said that the terms of the loan “essentially wiped out” the value of FXCM’s stock.

History

Foundation

Forex Capital Markets was founded in 1999 in New York, and was one of the early developers of online forex trading. Initially, the firm was called Shalish Capital Markets, but after only approx 1 year with this name, rebranded to become FXCM. In January 2003, FXCM entered into a partnership with Refco group, one of the largest US futures brokers at the time. Refco took a 35% stake in FXCM and licensed the FXCM software for use by its own clients. Following the collapse of Refco in October 2005, FXCM became entrenched in the Refco bankruptcy proceedings for a number of years.

In 2003, FXCM expanded overseas when it opened an office in London which became regulated by the UK Financial Services Authority.

In 2008, the self-regulatory organization for the US futures industry, the National Futures Association (NFA), obtained permission from the Commodity Futures Trading Commission (CFTC) to increase the minimum capital requirements, in staged increments, to $20M for "Forex Dealer Members" including FXCM. The increase was in response to the failures of a few forex brokers, and it allowed FXCM to acquire new business from some of its smaller competitors who either ceased all operations or moved out of the US. The same year it continued its overseas expansion and opened offices in France and Australia.

The following year FXCM UK started offering a limited number of CFDs to its non-US based clients, in addition to its currency products. In May 2010, FXCM acquired the UK CFD and spreadbetting provider ODL.

Initial public offering, law suits, fines and expansion

In December 2010, FXCM went public and began trading on the NYSE, becoming the first forex broker in the US to IPO. The initial public offering price was 14.00 per share. The following year, in February and March 2011, a number of class actions lawsuits were filed against FXCM, alleging fraud and racketeering from deceptive and unfair trade practices, and misleading shareholders during the 2010 IPO.

In August 2011, the NFA fined FXCM $2M for slippage malpractices. FXCM reached settlements with the NFA and the CFTC of $2M and $6M respectively, for practices relating to failure to pass along positive slippage to customers on certain order types prior to August 2010. In conjunction with these settlements, FXCM provided clients with restitution for the total amount of positive slippage, approximately $8M.

In October 2011, FXCM completed its acquisition of Japanese FX broker Foreland Forex Co., Ltd. for approximately $17M, net of cash and liquid assets acquired.

On October 25, 2011, three debtors, Certified, Inc., Global Bullion Trading Group, Inc., and WJS Funding, Inc., filed an adversary complaint in the United States Bankruptcy Court for the Southern District of Florida against Forex Capital Markets LLC, ODL Securities, Inc., and ODL Securities, Ltd. (“Defendants”). The complaint asserts claims under the Federal Bankruptcy Code to recover allegedly preferential and fraudulent transfers to the Defendants, under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C §1961 et seq., as well as the common law. The complaint seeks an unspecified amount of compensatory and punitive damages, interests, and costs.

In June 2012 FXCM bought a controlling stake in Lucid Markets LLP, a London-based automated trading group focused on currency trading.

In November 2016, FXCM expanded to South Africa, with an office is based in Johannesburg.

CFTC penalty and NFA membership revocation

FXCM promised its customers a "no dealing desk" trading system, taking prices from a number of major banks and allowing clients to trade the best price at any given time. This is also known as a direct market access (DMA) system, in contrast to a market maker system more commonly used by forex brokers. In a "dealing desk" or market marker system, FXCM would be the counterparty to every trade and would profit only when its customers lost money, and would lose money whenever its customers profited. In a "no dealing desk" system FXCM would act simply as a broker, getting a commission on every trade, while the banks take the risk on the trades and FXCM avoids a conflict of interest.

On February 6, 2017, the CFTC imposed a penalty of $7 million on FXCM for defrauding its retail customers. The Commission found that a closely related company was acting as the main market maker for its trades, and that FXCM lied to its customers about the market maker.

The Commission prohibited the company from registering with CFTC, effectively banning it from the US commodity brokerage industry. The same day, NFA barred FXCM from its membership. The company reacted by selling its US customer base to a rival forex broker Gain Capital Holdings Inc.

On February 13, 2017 FXCM agreed to pay another fine of $650,000 to the CFTC to settle charges that FXCM was undercapitalized by $200,000,000 in January 2015.

As of March 4, 2017 the firm was not accepting customers from many countries, including Hong Kong, Japan, the Russian Federation, Singapore, Turkey, Ukraine, the United States, and the US Virgin Islands. On March 30, 2017 Forex Capital Markets LLC ceased representing FXCM in Australia.

Global Brokerage Inc. regulatory reports

Global Brokerage, the owner of FXCM, filed a 10-K report on March 20, 2017 stating:

The Company’s subsidiaries are cooperating with regulatory authorities outside the U.S. in relation to their requests for information arising from the settlements announced on February 6, 2017.

and

The Convertible Notes mature on June 15, 2018. At that time, we will be obligated to repay the aggregate principal amount of the Convertible Notes. We may not have enough available cash or be able to obtain financing at that time to meet our repayment obligations”

Operations

FXCM was headquartered in New York with offices in Hong Kong, London, Tokyo, Paris, Berlin, Sydney, Dubai, Beirut, Milan, Santiago de Chile, Athens, Jerusalem and Tel Aviv. FXCM also owned the Forex trading news and research web site DailyFX before its sale to IG Group.

Industry criticism

Critics of the industry state that few retail traders have the experience to make money trading forex. Drew Niv, then chief executive of FXCM, said: "If 15% of day traders are profitable I'd be surprised." The New York Times quoted Marc Prosser, then Chief Marketing Officer at FXCM saying "Don't just call it investing - this is speculation, and people should only be putting up risk capital they can afford to lose." In each quarter of 2014, between 67% and 70% of FXCM open customer accounts lost money. Then in January 2015, due to trading in Swiss francs, their customers lost another $225 million or more.

References

1. "FXCM Inc. Prospectus". FXCM. Retrieved December 31, 2015. (2015)
2. Atkins, Dorothy (February 6, 2017). "FXCM To Pay $7 M For Hiding Deal With Market Maker". Law360. LexisNexis. Retrieved February 23, 2017.
3. ^ Chavez-Dreyfuss, Gertrude (February 21, 2017). "FXCM changes company name; appoints interim CEO". Yahoo Finance. Reuters. Retrieved February 24, 2017.
4. ^ Nguyen, Lananh (February 24, 2017). "Gain Capital Is Set to Become the Biggest U.S. Retail FX Provider". Bloomberg. Retrieved February 26, 2017.
5. "FXCM Comments on Swiss Franc Movement". GlobeNewswire. CNN. Retrieved January 16, 2015.
6. Stone, Mike; Chavez-Dryfuss, Gertrude; Toonkel, Jessica (January 16, 2015). "FX broker FXCM gets rescue from Jefferies parent Leucadia". Reuters. Retrieved January 16, 2015.
7. Faux, Zeke. "FXCM Owners Almost Wiped Out as Bailout Lets Leucadia Force Sale". Bloomberg. Retrieved January 20, 2015.
8. Wall Street Journal Staff (January 20, 2015). "FXCM rescue package includes rising interest rate". Staff. Market Watch. Retrieved January 20, 2015.
9. Zian, Mashit (October 2, 2015). "FXCM Sells Forex News Website DailyFX.com for $40 Million". FXdailyReport.Com. Retrieved October 10, 2016.
10. "Net Capital Requirements for Forex Dealer Members". NFA. September 24, 2008. Retrieved July 28, 2010.
11. "NFA proposal could cause significant shakeup among forex brokerages" (PDF). Currency Trader Magazine. August 2007. Retrieved July 28, 2010.
12. Harry Wilson (May 4, 2010). "Forex broker ODL accepts US takeover". telegraph.co.uk. London.
13. Vannucci, Cecile; Spears, Lee (December 2, 2010). "FXCM's IPO Raises $211 Million at Midpoint of Range". Bloomberg. Retrieved December 10, 2010.
14. "FXCM's IPO Raises $211 Million at Midpoint of Range". Bloomberg. August 21, 2013.
15. "Morgan Business Trial Group Files Class Action Lawsuit Against Nation's Largest Forex Dealer – FXCM". February 10, 2011.
16. "Kahn Swick & Foti, LLC And Former Louisiana Attorney General Announce Investigation Into FXCM, Inc. – FXCM". February 16, 2011.
17. "Law Offices of Howard G. Smith Announces Investigation On Behalf of Investors of FXCM Inc". February 17, 2011.
18. "Investor Relations (Press Release)". October 3, 2011.
19. "Dismissal Granted in SNB Related Securities Class Action Lawsuit against FXCM Inc. and Certain Officers (Press Release)". October 13, 2011.
20. "FXCM 10K Statement Q3 2011, Page 25". November 14, 2011.
21. "FXCM Eyes Stake in Infinium". The Wall Street Journal. August 21, 2013.
22. https://globenewswire.com/news-release/2016/11/16/890388/0/en/FXCM-Opens-Office-in-South-Africa.html
23. "CFTC Orders FXCM (FXCM) to Pay $7M Penalty for Defrauding of Retail Forex Customers". StreetInsider. StreetInsider. Retrieved February 6, 2017.
24. "NFA bars New York retail foreign exchange dealer Forex Capital Markets, LLC and its principals Dror Niv, William Ahdout and Ornit Niv from membership". NFA. February 6, 2017. Retrieved February 7, 2017.
25. "FXCM sells its US clients to Gain Capital as it exits US Forex market". LeapRate. February 7, 2017. Retrieved February 7, 2017.
26. Stempel, Jonathan (February 13, 2017). "FXCM to pay $650,000 CFTC fine over capital shortfall". Reuters. Retrieved February 23, 2017.
27. Nikolova, Maria (March 4, 2017). "FXCM.com removes all mention of Non Dealing Desk model". Finance Feeds. Retrieved March 4, 2017.
28. Nikolova, Maria. "Forex Capital Markets LLC finally ceases to be Australian Financial Services Representative". Finance Feeds. Retrieved April 14, 2017.
29. "Global Brokerage, Inc., Form 10-K". Edgar Online. Securities and Exchange Commission. Retrieved March 20, 2017.
30. Nikoleva, Maria. "FXCM (Global Brokerage Inc) warns of heavy risks due to Leucadia deal, regulatory action". FinanceFeeds. Retrieved March 20, 2017.
31. Golovtchenko, Victor (September 30, 2016). "Breaking: IG Group Buys DailyFX from FXCM for $40m". Finance Magnates. Retrieved October 10, 2016.
32. Karmin, Craig; MICHAEL R. SESIT (July 26, 2005). "Currency Markets Draw Speculation, Fraud". The Wall Street Journal. Dow Jones and Company. Retrieved October 31, 2007.
33. Egan, Jack (June 19, 2005). "Check the Currency Risk. Then Multiply by 100". The New York Times. Retrieved October 30, 2007.
34. Evans, David; Buckland, Kevin (January 16, 2015). "Casualties From Swiss Shock Spread From New York to New Zealand". Bloomberg. Retrieved March 14, 2017.

External links

• CFTC Docket No. 17-09, February 6, 2017
• "Regulator penalises US forex trading group FXCM twice". Financial Times. February 26, 2014. Retrieved February 24, 2017.

• Financial services companies of the United States
• Financial derivative trading companies
• Foreign exchange companies