FXCM’s settlement with the FCA – more background and details

Will other UK brokers face similar action for asymmetric slippage?

As we reported earlier, the UK arm of FXCM (NYSE:FXCM) has entered into a settlement agreement with UK’s Financial Conduct Authority (FCA). The agreement is concluding and old issue for the company related to order execution practices (asymmetric slippage) between August 2006 and December 2010.

As a result of the settlement, the FCA has fined FXCM UK £4 million ($6.7 million), while the company is compensating its customers with a total of about $10 million as restitution. FXCM came to a similar settlement back in 2011 with the NFA in the US regarding asymmetric slippage, paying a $2 million fine and $8 million in restitution to clients.

Like the current situation, FXCM’s 2011 NFA fine came as a result of an industry-wide investigation of trade execution practices in the retail forex sector. In the end, a number of leading US retail forex brokers settled similar charges, paying fines. We would assume that this is likely going to happen here as well.

In its Q3 earnings report, FXCM already disclosed that it is setting aside $15 million for “legacy issues” and according to the company’s current press release it will record additional charges of $1.9 million in the current quarter. Since FXCM UK cooperated with authorities to reach this settlement agreement, it qualified it for a 10% discount from FCA’s fine. While the total amount of restitution might seem substantial, the average loss per trader from the issue totals to $3.70. All clients who are due to be paid restitution will be notified within 60 days.

According to FXCM UK’s CEO Brendan Callan today’s announcement is the final step in putting this long-standing legacy trade execution practice behind. Reiterating his statement is a recently conducted survey by the company that implemented an improved execution technology back in August 2010.

The results dating from the past 6 months between August 2013 and January 2014 are quite conclusive on the difference to FXCM UK’s clients. During the period a total of 43,128,901 forex and metal trades were executed by the company and 15% of the trades benefited from the improved execution mechanism totaling $15,726,247 in price improvements.

Just above 4.5 million of these trades were limit and limit entry orders and 60% of these were affected by positive slippage totaling customers $ 7,296,520 in price improvements. According to the analysis, 73% of all trades were executed with no price slippage and only about 12% of orders were slipped negatively. According to current data, FXCM is one of the few brokerages in the forex industry that provide price improvements on market and limit orders.

Currently, the company remains committed to its non-dealing desk execution practices that offer full transparency and competitive pricing to the company’s clients.

For the full press release by the company visit FXCM’s website.

For the full press release by UK’s regulatory body visit FCA’s website.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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