FXCM letter to clients to repay negative balances


LeapRate Exclusive… LeapRate has received a copy of the letter being circulated by FXCM Inc (NYSE:FXCM) to its clients having negative client balances in their accounts, following large losses by many clients last Thursday on Swiss Franc CHF pairs trading.

The losses left certain FXCM clients with an aggregate of about $225 million of negative equity in their accounts – and left FXCM with a major hole in its regulatory capital requirements, leading to a $300 million bailout of FXCM by Leucadia National Corp (NYSE:LUK).

Interestingly, FXCM tells its clients in the letter that if they hold more than one account with FXCM, any funds from accounts with positive balances will be used to cover the negative balances in another account.

FXCM’s rationale for asking for repayment? The SNB’s surprise move removing the EURCHF 1.20 floor and what followed was a ‘force majeure event’.  Force Majeure events usually refer to war, strike, riot, crime, or events described by the legal term ‘Act of God’ such as a natural disaster, or other unforeseeable circumstances.

How a spike in a currency pair accompanied by a temporary loss of liquidity in that pair could be viewed as a ‘Force Majeure’ event – by a Forex broker! – is beyond us.

As we wrote yesterday, we believe that FXCM clients have a legitimate claim to refuse to repay negative balances (or even to have FXCM ‘merge’ their accounts), due to FXCM’s clearly stated policy “not to pursue claims for negative equity against our customers.” Clients with negative equity balances, if approached by FXCM, could simply state that they relied on FXCM’s policy and that they therefore reasonably expected that their losses could never exceed the amount of money they had on deposit.

The text of the letter follows below.

——————-

Dear Client,

IMPORTANT NEWS REGARDING YOUR FXCM TRADING ACCOUNTS

Please be advised that in order to offset negative balances you currently hold in your FXCM account(s), FXCM has transferred funds from your account(s) with a positive balance. The terms of your master trading agreement entered into with FXCM, available online, provide FXCM with these rights.

If after this transfer you still maintain a negative balance on your account, you are requested to remit funds immediately. FXCM accepts deposits by, debit card, bank wire and ACH electronic check. All options can be accessed via our www.myfxcm.com portal.

As you may already be aware, last week, the Swiss National Bank (“SNB”) announced that they will no longer support a self-imposed floor on the EUR/CHF exchange rate. Learn More.

The SNB announcement, extreme price movements and the resulting lack of liquidity were exceptional and unprecedented events causing many market participants to incur trading losses. These events were unforeseen and beyond the control of FXCM, constituting force majeure events.

Record of this transaction is available by generating a Combined Account Statement and referencing the description “Offset Transfer from Account to Account for Negative Balance”.

FXCM thanks you for you cooperation and understanding.

If you have any questions, please contact one of our specialists, who are available 24 hours a day, by live chat, by calling 1-888-503-6739, or by e-mail at info@fxcm.com

FXCM hereby reserves all rights and remedies that it may have at law, in equity, under the terms of any contracts with you. Nothing in this notice shall be deemed to constitute a waiver or settlement of any of FXCM’s rights and remedies.

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  • FXCM is falling …. This action is silly, and other clients will escape ..

  • Alex

    So Jordan has been promoted to god now? :)))

  • Janus

    Its OK they try see who will pay, but they cant go to court with 10.000 cases, will be too expensive, and uncertain if they will win or not. They might sell the claim to factoring companies, who will try scare the client to pay with all sorts of treaths – but at the end, too expensive and too uncertain a case to run.

    • Good point Janus. But we understand that most of the negative balances rest with a very small number (< 100) of traders which made some very large and leveraged bets against the Franc. I doubt they care much about the little guys with small negative balances, but will indeed try to collect from the small number of much larger accounts.

    • Paul L

      I traded with FXCM about ten years ago, and lost about £7500 all told over perhaps two years. It was a brutal introduction to currency trading. I gave up trading for a long time. In fact, i wrote to FXCM and berated them because, on many ocassions, there were unquestionably significant ‘spikes’ in the pairs i held in my account, which very often margined out the account or the trade. I wrote FXCM and told them that because of their evil behavior, one day they would pay for their evil acts. It looks like judgement is coming to them, even after ten years. Maybe Drew Niv, their CEO, can finally repent for worshipping the golden calf, and return to the worship of what is appropriate for a religious man, rather than the worship of Mammon. If not, my prayer is that he will do so before he is entirely wiped out personally.

  • Jacob

    FXCM UK – just I case I’m happy to start gathering people with negative balances (like myself) in UK. We can start looking for a lawyer and maybe even sue FXCM for balances we should have had in our account if margin calls were executed.
    notofxcm@gmail.com

    • The Truth III

      Keep dreaming if you think you’ll sue. It’s called investing = dog eat dog world. Play at your own risk

  • Andrew

    I wonder if they did this with regulatory approval, and if so which regulator, London or NY. Cant see the regulator looking on this too favourably and traders have easy recourse in the UK through the FSA to question FXCM.

  • RR

    Let me be clear that anyone who has a negative balance with FXCM will end up winning in Court.

    A contract can be abusive or even illegal. And even if the contract is legal, the SNB decision and its consequences constituting a Force majeure event is really legally debatable.

    Finally, no matter what the verdict will be regarding their force majeure point, the advertising material specifying the “no balance policy” will prevail. In all countries (in Europe at least,not sure about America) when it comes to retail clients protection the Financial professional party has to be as clean as white snow to hope to win. And it certainly ain’t the case with FXCM. As a pro you just can’t win when you are half lying, not matter the small lines.

    I shall add that FXCM holds a fair share of responsibility in not preventing the loss sustained by most of its clients. When some competitors took measures to protect their clients by :

    releasing specific warnings about the risk that the peg might break and that the liquidity might vanish to a point that stops wouldnt be triggered. That negative balances might occur. That such break would constitute a force majeure if it was to happen

    reducing the leverage (as they are doing now),

    increasing the margin requirements (as they also are doing now)

    or by making the trade unavailable (FXCM did it for not long ago for the USD/RUB).

    How come they did nothing when they had so many clients at risk in their book? How come they are the one who suffered the most from this event?

    Legally Financial professionals have all those above responsibilities toward their clients. and in Europe many Courts would condemn FXCM for such lack of anticipation and lask of warnings and lack of measures to prevent the losses. Retail clients are idiots and are treated as such by Courts. FXCM had no right to be near as idiot as their clients. And they have.

  • Phoenix

    Wow!! I have been practicing on demo for a number of months with FXCM with a view of going live shortly, then Wham!! They have always maintained to me that you cannot have a negative balance with their firm, so this is a revelation. I noted that they are also increasing the margin for Monday, I guess due to the elections in Greece, but tell me that everyone is going onto category D margin status.. I smell trouble here. http://img.fxcorporate.com/global/pdf/fxcm-uk-markets-updated-margin-2015-01.pdf I found this website a couple of days ago looking for the latest forex news and news on FXCM – Great resource and participants…

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FXCM letter to clients to repay negative balances

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