As we said they would, retail forex broker FXCM Inc (NYSE:FXCM) has issued a formal statement in reply to yesterday’s news that the CFTC was now charging FXCM with undercapitalization related to the 2015 Swiss Franc spike – more than a year and a half after the event, and after the issue had been rectified.
And, as expected, FXCM isn’t very happy and believes that the CFTC’s action was both unnecessary and (largely) unwarranted.
FXCM’s shares have dropped 7% in Friday trading, on news of the CFTC’s charges against the company
More on the original charges against FXCM by the CFTC can be seen in our article from yesterday, linked to above.
We repeat below FXCM’s full response. In summary:
- FXCM is very disappointed by the CFTC’s decision to file this complaint and attempt to punish FXCM who, like other market participants, was a victim of the SNB Event.
- FXCM believes that the CFTC’s claim that the company did not notify the CFTC of its net capital shortfall in a timely manner in incorrect. FXCM states that the regulators were fully apprised of the capital shortfall and, within hours of the SNB Event, the CFTC and the NFA were on site at FXCM’s offices.
- FXCM sees no basis for the CFTC’s claim that the company improperly guaranteed customers that they would not lose money. In fact, FXCM states that customers were required to acknowledge in writing that they received no guarantees of profit or freedom of losses from FXCM or its representatives.
Regarding that last claim of FXCM’s, we have written previously that FXCM has formally stated (in a 10-K annual filing with the SEC) that our policy is generally not to pursue claims for negative equity against our customers. So we’re not really sure what FXCM is talking about here.
FXCM’s formal statement reads as follows:
August 19, 2016
FXCM Issues Statement on CFTC Complaint
NEW YORK, Aug. 19, 2016 (GLOBE NEWSWIRE) — FXCM Inc. (NYSE:FXCM) (or the “Company”), today issued a statement on the complaint filed yesterday by the Commodity Futures Trading Commission (the “CFTC”) alleging violations of certain provisions of the Commodity Exchange Act. The CFTC claims relate to the unprecedented and unforeseen crisis that occurred in January 2015 — more than twenty months ago — when the Swiss National Bank (“SNB”) shocked the world currency market by announcing in the middle of a trading day that it was discontinuing the minimum exchange rate of the Swiss Franc to the Euro (the “SNB Event”). The Company is very disappointed by the CFTC’s decision to file this complaint and attempt to punish FXCM who, like other market participants, was a victim of the SNB Event.
The SNB Event damaged world markets and damaged FXCM and its customers. By the close of business on January 15, 2015, FXCM customers lost approximately $225 million. As a result of such losses, FXCM experienced for the very first and only time in its history a one-day regulatory net capital shortfall. FXCM thereafter promptly notified both the CFTC and the National Futures Association (the “NFA”) of its net capital shortfall due to the unforeseen SNB Event. Within hours of that notification, teams of CFTC and NFA personnel were on site at FXCM’s offices.
Faced with the crisis of the SNB Event, FXCM and its board of directors worked around the clock to raise the funds needed to cure its regulatory shortfall. We succeeded. By the next afternoon, the Company cured its capital shortfall through a $300 million loan from Leucadia National Corporation. We averted the crisis. Given those facts, we could not be more disappointed that the CFTC has decided to pursue an undercapitalization violation claim against FXCM. Such a claim under these circumstances is unprecedented and unwarranted. We are also disappointed in the CFTC’s intimation that the Company’s “seatbelt” system contributed to the FXCM’s undercapitalization during the SNB Event. To the contrary, the Company’s seatbelt system prevented FXCM and its customers from suffering additional trading losses that day.
Equally unwarranted is the CFTC’s claim that the Company did not timely notify the CFTC of its net capital shortfall. As noted above, the regulators were fully apprised of the capital shortfall and, within hours of the SNB Event, the CFTC and the NFA were on site at FXCM’s offices.
We also see no basis for the CFTC’s claim that the Company improperly guaranteed customers that they would not lose money. To the contrary, FXCM repeatedly represented to and warned its customers of the significant risks of trading FX and that such trading is appropriate only for individuals who can assume risk of loss in excess of their investment and margin deposit. In fact, FXCM customers were required to acknowledge in writing that they received no guarantees of profit or freedom of losses from FXCM or its representatives.
This action is unfortunate and disappointing, but the good news is that, because we acted as expeditiously as we did in January 2015, we protected our clients, we protected our employees, we protected our shareholders, and we protected our franchise.