XTB woes spook UK FX and CFD shares: IG -3%, Plus500 -5%, LCG -9%


asymmetric slippage XTB

Shares of leading FCA regulated, publicly traded online brokers were under pressure on Monday, after word broke in the Polish press that Warsaw based X Trade Brokers Dom Maklerski SA (WSE:XTB), which operates Retail Forex broker XTB.com as well as the X Open Hub trading platform, was under investigation in its home country for fraud.

XTB shares traded down by more than a third on the news, before being temporarily halted, and ended the day down more than 40% at a new all time low of zl 3.16. XTB went public in May 2016 at zl 11.50 per share.

However XTB shareholders were not the only ones hurt by the allegations. Contagion spread to other publicly traded FX and CFD brokers, and in particular the leading UK brokers. UK industry leader IG Group Holdings plc (LON:IGG) saw its shares trade down steadily during the day, ending off 3%. The number two CFDs broker in the UK, Plus500 Ltd (LON:PLUS), lost more than 5% of its value. London Capital Group Holdings plc (LON:LCG) traded down nearly 10%. And CMC Markets Plc (LON:CMCX) was down 1%.

While not nearly as severe a reaction as at XTB, of course, it does seem as though shareholders of these companies are somewhat concerned that what happened at XTB in Poland could happen in the UK.

What XTB is being accused of, asymmetric slippage, has been at certain times common FX industry practice.

Asymmetric slippage is the practice of FX brokers treating market movements in the (very) small time frame after orders are placed, but before they are executed, differently. Depending on whether those market movements work to the benefit of the client, or the market maker. What XTB is suspected of is executing client orders when the slippage was in its own favor, but cancelling (or repricing) client orders when the slippage was in the client’s favor. A practice which Polish authorities are calling outright fraud.

However the UK regulator, the FCA, already did a fairly in depth audit and analysis of broker processes and order execution methods a few years ago, which ended the slippage practice in the UK. The FCA handed out a few fines at the time for asymmetric slippage, most notably a £4 million fine in February 2014 to FXCM. So we would be very surprised if this becomes an issue in the UK.

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XTB woes spook UK FX and CFD shares: IG -3%, Plus500 -5%, LCG -9%

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