FXCM UK Announces $16.9 Million Settlement with FCA for Asymmetric Slippage

Jason Rogers

FXCM Representative
Messages
511
Looks like FXCM is no better than the "FPA Brokers Hall of Fame" members
Hi Eddiger,

First, I want to thank you for expressing your views here. No doubt, there are others on this forum who share your sentiments. I want to take this opportunity to say that you're right to be upset with us. FXCM should have passed on positive slippage to our clients from the beginning.

While the FCA settlement was announced just this Wednesday, the time period this relates to actually occurred from 2006 to 2010. Our system was updated in 2010 to pass all potential price improvements to clients, and our clients have received the benefit of price improvements since that time. Like the NFA action discussed in 2011, this FCA settlement has to do with positive slippage not being passed on in full when transactions were offset with liquidity providers prior to the 2010 update.

It's important to note that FXCM is currently one of the only firms in the industry to give price improvements on market and limit orders. I have mentioned over the past couple of years how many traders with other brokers currently experience re-quotes if the market moves in their favor, but often don't receive re-quotes for the better price when the market moves against them. Earlier this month in their newsletter, the FCA announced a thematic review of best execution, which we welcome to introduce best execution standards across the industry that benefit traders in the same way our traders have benefited for years.

Taking a look at FXCM price improvements today…

Analyzing a total of 43,128,901 forex and metal trades executed by FXCM during the six month period of August 2013 -January 2014, 6,391,641 or 15% of the trades benefitted from price improvements totaling $15,726,247. Of the total number of trades executed, 4,648,672 trades were limit and limit entry orders. Sixty percent of those limit and limit entry orders were positively slipped providing clients $7,296,520 in price improvements. Of the total trades executed in the six month period of August 2013 - January 2014 clients were executed at their requested price 73% of the time with no slippage. Only 12% of orders were slipped negatively. As mentioned before, FXCM is currently one of the only firms in the industry to give price improvements on market and limit orders.

At FXCM, there are no re-quotes and traders benefit from the positive slippage in full whenever it's available.
 

Pharaoh

Colonel
Messages
19,899
Here's the full text from the FCA:

The Financial Conduct Authority fines FXCM UK £4 million for making ‘unfair profits’ and not being open with the FCA
Published: 26/02/2014 Last Modified : 26/02/2014

The Financial Conduct Authority (FCA) has fined Forex Capital Markets Ltd and FXCM Securities Ltd (“FXCM UK”) £4,000,000 for allowing the US based FXCM Group to withhold profits worth approximately £6 million ($9,941,970) that should have been passed on to FXCM UK’s clients.

FXCM UK also failed to tell the FCA that the US authorities were investigating another part of the FXCM Group for the same misconduct. The FCA has ensured that FXCM UK’s clients will be fully compensated, with credit automatically paid to their accounts. David Lawton, the FCA's director of markets, said:

“When consumers lose out because of poor conduct it undermines confidence in the integrity of our markets. The FCA will use all the tools at its disposal – supervision, rule-making and enforcement – to ensure that firms do not exploit conflicts of interest or the trust placed in them by their clients.”

Tracey McDermott, the FCA’s director of enforcement and financial crime, said:

“Not only did FXCM UK fail to treat its customers fairly or correctly apply our rules, I am particularly disappointed that it was not transparent in its dealings with the FCA. We expect all firms to put customers at the heart of their business, and we have taken action to ensure clients of FXCM UK will get redress.”

FXCM UK placed ‘over the counter’ foreign exchange transactions known as rolling spot forex contracts on behalf of retail clients, which were then executed by another part of the FXCM Group. Between August 2006 and December 2010, the FXCM Group kept profits from favourable market movements between the time the orders were placed by FXCM UK and executed by the FXCM Group, while any losses were passed on to clients in full – a practice known as asymmetric price slippage.

FXCM UK also failed to check that its order execution systems were effective, and whether its order execution polices complied with the FCA’s rules on best execution.

These rules require firms to take reasonable steps to secure the best possible deal for their clients. The FCA also expects firms to treat their customers fairly (FCA principle 6) – FXCM UK fell short of both of these standards.

In July 2010, the US authorities launched an investigation into FXCM’s business in the US. Although senior managers of the FXCM Group sat on the Board of FXCM UK and knew about the investigation, FXCM UK failed to alert the FCA. This breached the FCA’s requirement that firms are open and cooperative with the regulator (FCA principle 11).

Once it became aware of the investigation in August 2011, the FCA stepped in to review FXCM UK and secure redress for affected consumers.

The FCA is conducting a thematic review of firms’ execution practices, including the way services are described to clients and arrangements for order execution and review. The FCA expects to publish the results by the end of Q2 2014.


Originally published at: The Financial Conduct Authority fines FXCM UK £4 million for making ?unfair profits? and not being open with the FCA - Financial Conduct Authority
 

Master Yoda

Captain
Messages
2,929
Hi Eddiger,
At FXCM, there are no re-quotes and traders benefit from ethe positive slippage in full whenever it's available.
Here's the issue Jason- also in the years 2006-2010 you've promised traders that you're the best and the most transparent. How can we as traders believe this is the situation also today?
 

Jason Rogers

FXCM Representative
Messages
511
Here's the issue Jason- also in the years 2006-2010 you've promised traders that you're the best and the most transparent. How can we as traders believe this is the situation also today?
Hi Eddiger,

Under the terms of our settlement with the FCA, FXCM UK has agreed to pay fines totaling £4 million to the FCA and to provide approximately $10 million in restitution to the affected clients. All clients receiving restitution will be notified within 60 days. This settlement is a significant step in our efforts to put this legacy trade execution issue from 2010 behind us.

FXCM LLC provides daily trade reports to the NFA which monitors and supervises FXCM LLC's activity including information on the price where client orders are filled and the corresponding price where those orders are offset with our liquidity providers. All of FXCM's global trading entities including FXCM UK execute client rolling spot forex transactions as a riskless principal with FXCM LLC, so the same execution standards are applied for all of FXCM clients worldwide.

Furthermore, the FCA announced a thematic review of best execution, which we welcome to introduce best execution standards across the industry that benefit traders in the same way our traders have benefited for years. In the last six months alone, FXCM clients have received price improvements totaling over $15 million.
 

Master Yoda

Captain
Messages
2,929
I think it's good you are paying back clients unlike other frauds, yet, FXCM is a big name and you had no other choice before losing your license or at least being fined with a bigger sum.

My point, however, is another one- as now also back in the years 2006-2010 you've stated the same words you are doing now. Which we all see now that it wasn't true.

I just hope that unlike the 2006-2010 period you will mean and make your promises. After all, you were a big company that many trust, including myself.
 

Pharaoh

Colonel
Messages
19,899
Tracey McDermott, the FCA’s director of enforcement and financial crime, said:

“Not only did FXCM UK fail to treat its customers fairly or correctly apply our rules, I am particularly disappointed that it was not transparent in its dealings with the FCA. We expect all firms to put customers at the heart of their business, and we have taken action to ensure clients of FXCM UK will get redress.”
Jason, if you want to win a Transparency Award from me, please provide a clear and straightforward answer to this:

How did FXCM in the USA and UK accomplish this differential slippage? Was the VDP or similar software employed in either or both locations? If so, what company or companies supplied this software to FXCM.
 

Jason Rogers

FXCM Representative
Messages
511
I think it's good you are paying back clients unlike other frauds, yet, FXCM is a big name and you had no other choice before losing your license or at least being fined with a bigger sum.

My point, however, is another one- as now also back in the years 2006-2010 you've stated the same words you are doing now. Which we all see now that it wasn't true.

I just hope that unlike the 2006-2010 period you will mean and make your promises. After all, you were a big company that many trust, including myself.
Hi Eddiger,

FXCM took major steps to address potential conflicts of interest when we first introduced the No Dealing Desk (NDD) forex execution model in 2006, back when the vast majority of brokers in the industry were still using a dealing desk model. We made this change because we believed then and we still believe now that the NDD model is more fair and transparent in that it offers competitive, market driven prices that are sourced from multiple liquidity providers.

In switching to the NDD model, we left behind the fixed-spread dealing desk model which was the norm at the time. This meant that our clients enjoyed benefits that weren't traditionally available to retail forex traders in the past such as the ability to set stops and limits as close as 1 pip from the market price, with no restrictions on setting orders during news events, and no re-quotes. This eliminated a lot of the conflicts of interest that are built into dealing desk model, and helped FXCM grow into an industry leader with over $1 billion in customer funds.

That's not to dismiss what happened from 2006-2010, and we apologize for not passing on positive slippage in full to our clients in the past. As you mentioned, the NFA settlement in 2011 and the recent FCA settlement both relate to this same issue. Since that time, the NFA finalized their Price Slippage and Price Re-quoting rules. As mentioned earlier, under those new rules, FXCM LLC provides daily trade reports to the NFA which monitors and supervises FXCM LLC's activity including information on the price where all client orders are filled and the corresponding price where those orders are offset with our liquidity providers. All of FXCM's global trading entities including FXCM UK execute client rolling spot forex transactions as a riskless principal with FXCM LLC, so the same execution standards are applied for all of our clients worldwide.
 

Jason Rogers

FXCM Representative
Messages
511
Jason, if you want to win a Transparency Award from me, please provide a clear and straightforward answer to this:

How did FXCM in the USA and UK accomplish this differential slippage? Was the VDP or similar software employed in either or both locations? If so, what company or companies supplied this software to FXCM.
Hi Pharaoh,

FXCM has never used the Virtual Dealer Plugin. This settlement concerns price improvements from 2006 to 2010 which we discussed back in 2011. When we first introduced our No Dealing Desk (NDD) forex execution system in 2006, it did not pass on the positive slippage in full.

To clarify what I mean by "in full" it helps if I explain in more detail how positive slippage with our execution system used to work prior to August 2010 and how it has worked since then. FXCM platforms display the best bid/ask spread streamed from 10+ competing liquidity providers plus our fixed pip markup. Each client order is automatically offset in a two step process, designed to ensure that FXCM does not profit from a trader's losses. In the first step of the execution process, a trader clicks on the price and the order is sent to FXCM. In the second step, we automatically send the client's order to one of our liquidity providers to offset the trade.

Our execution system prior to August 2010 only offered price improvements to clients in the first step of the process. If a better price became available on FXCM's platform in the fraction of a second after the client submitted the order but before the order was received by FXCM, the client would benefit from the price improvement. However, FXCM's previous execution system did not provide clients with price improvements in the second step of the execution process, even if FXCM was able to offset the order at a better price, excluding our markup.

Since the 2010 updates to our execution system, FXCM clients worldwide have benefited from price improvements in both steps of a transaction for all order types. Just in the past 6 months alone, our clients have benefited from over $15 million in price improvements, and FXCM is currently one of the only firms in the industry to give price improvements on both market and limit orders. For example when a dealing desk broker re-quotes traders, the trader often receives a re-quote when the market moves in their favor, but does not receive a re-quote when the market moves against them. In other words, the process is asymmetrically applied to the broker’s benefit. It's possible that this asymmetrical application of re-quotes could cause traders to miss out on potential price improvement. The UK FCA announced in their 2014 MarketWatch Newsletter article in February a thematic review of trade execution standards which we hope will uphold the same high standards and execution policies we implemented back in 2010.
 
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