Broker fined again - $515,000

Hi Everyone,

I would have responded sooner but was out of the office the past four days: http://www.forexfactory.com/showthre...33#post9210033

Now that I have returned, I want you to know I am happy to address the regulatory actions you mentioned along with any additional questions you may have. No doubt there are others on this forum who share your concerns, so I would like to take this opportunity to say you're right to be upset with us. FXCM should have passed on positive slippage to our clients from the beginning:

For clarification, while this SFC announcement was made just a few days ago, the time period it relates to occurred between 2006 and 2010. 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 potential conflicts of that can exist with the dealing desk model, and has helped FXCM grow into an industry leader with $875 billion in retail customer trading volume in the third quarter of 2016.

That's not to dismiss what happened from 2006 to 2010, and we apologize for not passing on positive slippage in full to our clients in the past. Like the NFA and CFTC settlements (FXCM US) in 2011 and the FCA settlement (FXCM UK) in 2014, the SFC settlement (formerly FXCM HK, but now known as Rakuten Securities HK) has to do with positive slippage not being passed on in full when transactions were offset with liquidity providers prior to the 2010 update. As with those previous settlements in the US and UK, FXCM has agreed to pay fines to the local regulator in Hong Kong (HK$4 million to the SFC) and make full restitution to the affected clients (US$1,452,926.69 to a total of 3,739 accounts belonging to current and former FXCM HK/Rakuten clients). This settlement is a significant step in our efforts to put this legacy trade execution issue behind us.

As a result of the changes we made to our execution system in 2010, FXCM now passes on all available positive slippage in full to our clients on all orders types including market and limit orders. As mentioned above, FXCM US is regulated by the CFTC and NFA, the same two bodies that oversee futures trading on the CME. Furthermore, in compliance with rules regarding price slippage and price re-quoting that were finalized in 2012, FXCM US provides daily trade reports to the NFA which monitors and supervises FXCM US'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 and FXCM Australia execute client rolling spot forex transactions as a riskless principal with FXCM US, so the same execution standards are applied for all of our clients worldwide. The latest execution stats from January 2015 through March 2016 showed the following:

1. 78.71% of all orders had NO SLIPPAGE.
2. 12.77% of all orders received positive slippage.
3. 8.52% of all orders received negative slippage.
4. 50.2% of all limit and limit entry orders received positive slippage.
5. 39.9% of all stop and stop entry orders received negative slippage.

By contrast, while there are no re-quotes at FXCM, there are still some brokers today that re-quote their clients. Clients of such brokers receive a re-quote when the market moves in their favor, but don't receive a re-quote when the market moves against them. It's possible that this asymmetrical application of re-quotes could cause clients of such brokers to miss out on potential positive slippage.

Honestly, I would say this is my first time t hear that a broker was charged that much. This must really be a serious case against them, can someone please explain to me what could lead to such fines? and what traders can do not to be caught in it.

It seems like I hear more of abusive practices from the so called "regulated" brokers than those which are fully unregulated/illegal.

This is so scaring.

I really appreciate this detailed explanation of what went down and how respectful you were in replying. Thanks a lot, I guess we all have seen what really happened.