bigpippin77
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Some interesting news from the FXCM camp...
"Regulation Fear Rises as FXCM-CFTC Bang Heads"
$17,014 may not be a large amount of money, but fears are growing that a dispute involving retail FX broker FXCM and the US Commodities and Futures Trading Commission (CFTC) over just that amount may have repercussions for the wider FX market.
FXCM has been accused by a client, Robert Dickten, of “arbitrarily setting prices without any correlation to the prevailing spot prices on the interbank market; setting arbitrary and unreasonably wide bid-ask spreads; arbitrarily "spiking" prices to trigger stop orders and margin calls; and filling market orders that routinely suffered from substantial and unjustifiable slippage.”
The CFTC has fined FXCM $2,425 having found it guilty of “defrauding” the client during the initial solicitation for his business although other charges were dropped. Dickten told the CFTC that he continued to trade with FXCM in spite of growing doubts over the firm’s practices in order to gather sufficient evidence for a complaint.
Market sources tell Squawkbox that disputes between liquidity providers and clients in the retail space are “nothing new” but there is an acceptance that allegations by Dickten that FXCM’s platform arbitrarily quoted spreads of “double and triple-digits”, do the industry no good.
Banking sources spoken to by Squawkbox agree that spreads on the bank platforms – which FXCM uses on occasions to lay off risk – went to double digits during the height of the credit crunch, but apart from markets that are already quoted on a wide basis – typically emerging markets – at no time did spreads hit three digits.
The CFTC states that: “Dickten has established that FXCM's website misrepresented and omitted various material facts. FXCM's claim that customer funds were "safe" because FXCM was "regulated" distorted the fact that forex dealers are lightly regulated. Thus, the funds of forex customers are not legally required to be subject to segregation and may be subject to claims by the creditors of a forex dealer. FXCM's guarantee that trading was slippage-free was deceptive because forex dealers such as FXCM have not proven the capability, during inevitable volatile market conditions, to consistently fill stop and limit orders at or near the stop or limit price.
“More importantly, FXCM's website did not clearly disclose the conflct that arose from the fact that FXCM made money on the mark-up or pip-spread on trades, and did not clearly disclose the size of the mark-up or its detrimental effect on profitability,” the CFTC adds. “Finally, the disclosures in FXCM's account-opening package were sufficiently weak and misleading that they failed to correct the website deceptions.
FXCM's disclosures similarly failed to cure the misleading nature of the trading forex with FXCM, because the contest featured narrower bid-ask spreads than those imposed by FXCM. The recklessness of FXCM's various misrepresentations and omissions was underscored by their blatantly baseless and deceptive nature.”
There is a degree of disquiet in the foreign exchange industry over the case because FXCM is questioning the authority of the CFTC to pass judgement. The firm says that as the trades in question are spot OTC deals they are outside of the CFTC’s jurisdiction – a claim the CFTC refutes. Should the CFTC succeed in establishing its jurisdiction in this case, industry sources believe that the wider foreign exchange market is one step closer to regulation.
“We have seen the lines blur between retail and wholesale over the past couple of years,” says a banking source. “If the authorities can establish themselves as a regulator of the OTC retail FX market – as opposed to the FCMs which are futures shops – the market may face a choice. Accept it is only a matter of time before the wholesale market is subject to the same oversight, or establish definable barriers between retail and wholesale FX markets.”
"Regulation Fear Rises as FXCM-CFTC Bang Heads"
$17,014 may not be a large amount of money, but fears are growing that a dispute involving retail FX broker FXCM and the US Commodities and Futures Trading Commission (CFTC) over just that amount may have repercussions for the wider FX market.
FXCM has been accused by a client, Robert Dickten, of “arbitrarily setting prices without any correlation to the prevailing spot prices on the interbank market; setting arbitrary and unreasonably wide bid-ask spreads; arbitrarily "spiking" prices to trigger stop orders and margin calls; and filling market orders that routinely suffered from substantial and unjustifiable slippage.”
The CFTC has fined FXCM $2,425 having found it guilty of “defrauding” the client during the initial solicitation for his business although other charges were dropped. Dickten told the CFTC that he continued to trade with FXCM in spite of growing doubts over the firm’s practices in order to gather sufficient evidence for a complaint.
Market sources tell Squawkbox that disputes between liquidity providers and clients in the retail space are “nothing new” but there is an acceptance that allegations by Dickten that FXCM’s platform arbitrarily quoted spreads of “double and triple-digits”, do the industry no good.
Banking sources spoken to by Squawkbox agree that spreads on the bank platforms – which FXCM uses on occasions to lay off risk – went to double digits during the height of the credit crunch, but apart from markets that are already quoted on a wide basis – typically emerging markets – at no time did spreads hit three digits.
The CFTC states that: “Dickten has established that FXCM's website misrepresented and omitted various material facts. FXCM's claim that customer funds were "safe" because FXCM was "regulated" distorted the fact that forex dealers are lightly regulated. Thus, the funds of forex customers are not legally required to be subject to segregation and may be subject to claims by the creditors of a forex dealer. FXCM's guarantee that trading was slippage-free was deceptive because forex dealers such as FXCM have not proven the capability, during inevitable volatile market conditions, to consistently fill stop and limit orders at or near the stop or limit price.
“More importantly, FXCM's website did not clearly disclose the conflct that arose from the fact that FXCM made money on the mark-up or pip-spread on trades, and did not clearly disclose the size of the mark-up or its detrimental effect on profitability,” the CFTC adds. “Finally, the disclosures in FXCM's account-opening package were sufficiently weak and misleading that they failed to correct the website deceptions.
FXCM's disclosures similarly failed to cure the misleading nature of the trading forex with FXCM, because the contest featured narrower bid-ask spreads than those imposed by FXCM. The recklessness of FXCM's various misrepresentations and omissions was underscored by their blatantly baseless and deceptive nature.”
There is a degree of disquiet in the foreign exchange industry over the case because FXCM is questioning the authority of the CFTC to pass judgement. The firm says that as the trades in question are spot OTC deals they are outside of the CFTC’s jurisdiction – a claim the CFTC refutes. Should the CFTC succeed in establishing its jurisdiction in this case, industry sources believe that the wider foreign exchange market is one step closer to regulation.
“We have seen the lines blur between retail and wholesale over the past couple of years,” says a banking source. “If the authorities can establish themselves as a regulator of the OTC retail FX market – as opposed to the FCMs which are futures shops – the market may face a choice. Accept it is only a matter of time before the wholesale market is subject to the same oversight, or establish definable barriers between retail and wholesale FX markets.”
