IKON GM Nailed by the NFA for Using a Virtual Dealer Plugin
Just when I thought I had my writing addiction cured
Just when I thought I had my writing addiction cured
As infuriated as I am and the CFTC and NFA for some of their incredibly moronic new regulations, this time I have to deeply thank the NFA for watching out for forex traders.
Bruce from Dallas left a review a few hours ago about an NFA action against IKON Global Markets. One of the Review Moderators passed it to the AsstModerator. He called me to ask if I was busy. I'm always busy with something, but I dropped everything once I read the NFA finding. My thanks to all involved.
Most of you have heard of Virtual Dealer Plugins. These are pieces of software that let a broker rig things so that slippage almost always goes against traders and almost never in their favor. In the real world, positive slippage and negative slippage should be about equal over time. Using the plugin, if real slippage is in a trader's favor, some or all of it doesn't show in the platform and the broker keeps that money. Some of these plugins can force extra slippage against a trader on open and close, even when there's plenty of liquidity and the markets are calm. Some can delay an order open or close by a few seconds and will always execute the order in the trader's platform at the worst price during those few seconds. If the broker gets a real price on the order that's better, the broker pockets the difference. No matter how it's done, slippage in favor of a trader gets reduced or eliminated and slippage against a trader is charged or increased. This is Asymmetical Slippage.
No forex brokerage will publicly admit to using software like this. Some may even claim that they've never heard of such a thing. To admit to using a virtual dealer plugin or anything similar would be an admission that the broker is stacking the deck against traders and that the broker is improperly taking money that belongs to a trader.
The NFA cited IKONGM for using Asymmetrical Slippage Settings. IKON GM and it's Director, Diwakar Jagannath, were also cited for failing to supervise the firm's operations. IKON and Jagannath settled with the NFA Business Conduct Committee in a way that allowed them to neither admit nor deny the complaint. They agreed to the following:
1. Within thirty days of the effective date of a Decision accepting their Offer, IKON shall refund to customers the amount of negative slippage they experienced on the trades that were placed in their accounts, which were attributable to the Virtual Dealer Plug-in that IKON used on its MetaTrader trading platform. IKON further agreed to provide verification to NFA that these refunds were paid and received by customers.
2. Within thirty days of the effective date of a Decision accepting their Offer, IKON shall pay the amount of $320,000 to NFA as a monetary sanction.
So, let me see if I'm reading #1 right. It seems to say that while not admitting that they used a Virtual Dealer Plugin to take money from traders., Ikon Global Markets has agreed to refund clients for negative slippage caused by the Virtual Dealer Plugin that IKON has installed on its MT4 backend.
The original NFA Complaint confirms this usage of the Virtual Dealer Plugin. It says:
In November 2007, IKON purchased an add-on to the MetaTrader platform called the "Virtual Dealer Plug-|n," which it began using in December 2007.
That document confirms that IKON stopped using the Virtual Dealer Plugin in April 2010, immediately after NFA expressed its concerns about the propriety of the asymmetrical slippage settings.
s I see it, this pretty much says, "IKON Global Markets used a virtual dealer plugin to cheat traders and now is going to pay back what they took."
I'm very happy to see that the NFA is forcing not just a refund of money that was taken by this evident manipulation of slippage, but that they nailed IKON for $320,000 penalty. I hope that money comes out of the salaries of those behind this incident and isn't somehow passed on to traders.
This isn't even IKON GM's first NFA penalty of the year. Last year, an account management company called CFS Capital Management was accused by the NFA of improperly moving money between different client accounts. You can read the FPA Scam Article on that company here as the NFA Decison regaring IKON's involvement here. It turns out that at least some of those managed accounts were at IKONGM, and the NFA hit them for a $20,000 penalty in March 2010.
IKONGM and those who were behind this there should be ashamed. I would expect some no-name offshore bucketshop to pull a stunt like abusing trader with a virtual dealer plugin. I expect much better behavior from a name brand US based forex broker. Those new NFA and CFTC restrictions on traders are chasing enough clients offshore. Scandals like this will only further erode confidence in US brokers.
My only hope is that IKON GM and its senior management will view this as a wake up call. They've tuned off the Virtual Dealer Plugin and will likely be under more intense NFA scrutiny for awhile. Whether they really can learn from these mistakes remains to be seen.
NFA Case Summary for IKON's Assymetrical Slippage Settings
NFA Complaint with dates of Virtual Dealer Plugin purchase and installation
NFA Decision against IKON for Asymmetrical Slippage
Good job, NFA!
MORE INFO: Looks like I missed another big broker getting nailed. Gain Capital/Forex.com got nailed for using the Virtual Dealer Plugin and more. More details are given farther down in this thread.
IKON and Forex.com are 2 of America's biggest brokers. How many more are using this cheating software?