In February 2017, the National Futures Association (NFA) barred Forex Capital Markets LLC (FXCM) from membership. The NFA action came as a result of FXCM’s failure to meet the minimum capital requirements for its U.S. retail forex trading business. FXCM was also fined $7 million for engaging in false and misleading solicitations of its retail forex customers, among other charges.
The NFA is a self-regulatory organization for the U.S. derivatives industry, including forex brokers. It was established in 1982 as a nonprofit organization to regulate and oversee the activities of its members. The NFA’s mission is to protect investors, maintain market integrity, and ensure a level playing field for all market participants.
FXCM is one of the largest retail forex brokers in the world, with operations in the U.S., U.K., Australia, and other parts of the world. The company has been in business for over 20 years and has a reputation for providing quality forex trading services to its clients.
However, in January 2015, FXCM was caught up in a major scandal when the Swiss National Bank (SNB) unexpectedly removed the cap on the Swiss franc’s value against the euro. The move caused the Swiss franc to appreciate significantly, causing massive losses for many forex traders, including those trading with FXCM.
FXCM was then forced to seek a bailout from Leucadia National Corporation, a financial holding company. In return, Leucadia took a controlling interest in FXCM, which resulted in the company being delisted from the New York Stock Exchange.
The NFA’s action against FXCM was a result of the company’s failure to meet the minimum capital requirements for its U.S. retail forex trading business. The NFA requires all forex brokers to maintain a minimum level of capital to ensure that they can meet their financial obligations to their clients.
According to the NFA, FXCM had been undercapitalized for a significant period before the SNB crisis, and the company’s failure to meet the minimum capital requirements was a violation of NFA rules. The NFA also found that FXCM had engaged in false and misleading solicitations of its retail forex customers, including failing to disclose that it had an interest in the market-making entity that was providing pricing for its customers.
The NFA’s action against FXCM has significant implications for forex traders, particularly those trading in the U.S. market. The NFA’s role is to protect investors and maintain market integrity, and its decision to bar FXCM from membership shows that it takes its responsibilities seriously.
Forex traders need to be aware of the risks involved in trading with undercapitalized brokers. If a forex broker is undercapitalized, it may not be able to meet its financial obligations to its clients, which could result in losses for traders.
The NFA’s action against FXCM also highlights the importance of conducting due diligence when choosing a forex broker. Forex traders should research their broker’s background, capitalization, and regulatory status before opening an account.
In conclusion, the NFA’s decision to bar FXCM from membership was a significant blow to the company and a warning to other forex brokers. The action highlights the importance of maintaining adequate capitalization, providing accurate and transparent information to customers, and adhering to regulatory requirements. Forex traders should be aware of the risks involved in trading with undercapitalized brokers and conduct proper due diligence when choosing a broker.
