On Friday, August 12, 2011, the National Futures Association (NFA) announced that it would fine Forex Capital Markets, LLC (FXCM) $2 million for slippage malpractices. The NFA also ordered FXCM to return the money it gained from its unfair practices to the affected clients.
Here’s the actual text of the press release from the NFA:
NFA levies $2,000,000 monetary sanction against FXCM and orders refunds to customers
August 12, Chicago – National Futures Association (NFA) has issued a Decision imposing a $2,000,000 monetary sanction against Forex Capital Markets LLC (FXCM) in settlement of a Complaint issued by NFA’s Business Conduct Committee on August 12, 2011.
The Complaint cited FXCM for retaining gains derived from asymmetrical positive price slippage; failing to adopt or carry out adequate procedures to ensure the efficient execution of all customer orders; failing to treat all customers equally when giving price adjustments; failing to adequately investigate suspicious activity in several customers’ accounts; and – together with its principal Dror Niv – failing to supervise.
FXCM is a Futures Commission Merchant, Retail Foreign Exchange Dealer, and Forex Dealer Member located in New York, New York.
In addition to the $2,000,000 monetary sanction, FXCM must credit the accounts of its customers the amount of asymmetrical positive slippage that its customers experienced on their trades from and after June 18, 2008, and provide verification to NFA of these credits.In the future, FXCM is prohibited from engaging in price slippage or margin liquidation practices, as described in the Complaint. FXCM must also enhance existing procedures to ensure efficient execution of customer orders and compliance with NFA’s anti-money laundering requirements.
In response, without admitting or denying the allegations, FXCM accepted the ruling. FXCM said that they would contact affected clients who are eligible for payments in the next 30 days. FXCM estimated that the total reimbursement payment to clients is around $8 million.
The $2 million fine plus reimbursement payments are probably equivalent to a slap in the wrist for FXCM, but it’s still a huge amount of money for us regular traders.
Man, if I had an extra $10,000,000 I would probably live a trader’s dream. I don’t plan on quitting forex trading, so I’ll just use the money for these instead:
But I digress.
Anyways, the NFA’s ruling just goes to show that the NFA isn’t afraid to butt heads with the big boys. FXCM is one of the biggest retail forex brokers in the world and slapping a hefty fine on them shows how serious the NFA is in protecting retail forex traders.
After the dust settles, I think this event will be another positive step for our fast-growing industry. There will be more faith in regulatory agencies to do their job and more confidence in the brokers these agencies are watching over.
If we do see trader sentiment on brokers trend this way, this could mean more business for regulated brokers, which in turn means that not only do we get a safer and more transparent market for retail players but hopefully more liquidity and better pricing.
Only time will tell whether or not industry trends will play out in this manner, but we can all hope for the best, right?
If you wish to talk more about the issue, just go to the discussion thread over at the BabyPips.com forums. An FXCM representative is also present to answer any of your questions.