FXCM, also known as Forex Capital Markets, is a retail foreign
exchange broker, now run from London after being banned from United
States markets for defrauding its customers. Its parent
company, Global Brokerage, Inc. filed for bankruptcy on December 11,
FXCM allows retail clients to speculate on the foreign exchange market
and provides trading in contract for difference (CFDs) on major
indices and commodities such as gold and crude oil. Its shareholders
have lost 98% of their investment since January 2015.
On February 6, 2017 the firm agreed to pay a $7 million penalty to
settle a suit from the U.S. Commodity Futures Trading Commission
(CFTC) involving fraudulent misrepresentation by
FXCM to its customers
and to regulators.
FXCM withdrew its CFTC registration and agreed not
to re-register in the future, effectively banning it from trading in
the United States. Three top managers have resigned under
regulatory pressure and the majority owner of the firm has changed its
name to Global Brokerage Inc., effective January 27,
2017. Non-US regulators are also investigating the
same or similar incidents, though the board of
FXCM UK has stated
that it does not expect to be sanctioned by the UK's Financial Conduct
A Managing Director of
Leucadia National Corp, which holds a 49.9%
equity stake in the operating company, has been appointed chairman
FXCM board. Its U.S. accounts were sold to Gain Capital.
About 40,000 customer accounts were sold at about $375 each.
1 Corporate structure
2.2 Initial public offering
2.3 Legal issues
Swiss franc jump
2.5 Loss of US license
2.6 Financial issues
3 Industry criticism
5 External links
The parent company, Global Brokerage Inc (formerly called
was publicly traded on the
New York Stock Exchange
New York Stock Exchange until early 2017,
and then on
NASDAQ until its delisting in December 2017, soon after it
announced its bankruptcy filing. Global Brokerage owns a 74.5%
interest in Global Brokerage Holdings, which owns 50.1% of FXCM.
Leucadia National Corp owns the other 49.9%, plus debt worth $123
million as of March 31, 2017.
FXCM owns all the operating companies
FXCM UK. Leucadia does not own any shares in Global
Ken Grossman is CEO of Global Brokerage. Drew Niv, who had earlier
resigned the position, was interim Chief Executive Officer of Global
Brokerage until about May 15, 2017. Grossman has an unusual contract
that will pay him $600,000 in base salary plus a bonus of $1,000,000
if he stays in the position for a full year, but his tenure will
terminate in one year.
FXCM Brendan Callan is the CEO and Jimmy Hallac of Leucadia is
Chairman of the Board. COO David Sakhai receives base compensation of
$600,000 per year plus a $1,000,000 bonus. Eduard Yusupov, the head
dealer, receives a $600,000 base pay. Global Brokerage, Inc. had a
market capitalization of about $12 million in May 2017. Cash
FXCM is first applied to pay off the debt owned by
Leucadia, which had the right to force a sale of
FXCM in January 2018
if the debt is not paid.
FXCM owned about 34.5% of the ECN FastMatch which was sold to the
Euronext exchange for $153-$163 million.
FXCM realized about $55.6
million on the sale.
At least three sets of lawsuits have been filed against the parent
firm, Global Brokerage, Inc. Shareholders contend that they were
misled by the company's initial public offering prospectus or
otherwise defrauded by management. Former customers contend that they
were defrauded by the claim that they were trading on a "no dealing
desk" system. In the UK Daniela Shurbanova filed a suit
claiming that trades that resulted in $460,000 in profits for her were
FXCM says that the trades were cancelled because the
prices they quoted were changed more slowly than actual market prices,
and that Shurbanova was trading to take advantage of the price
FXCM reported negative earnings of $28.2 million for the quarter
ending March 1, 2017 and held $141.7 million in cash. They owed $121
million to Leucadia. Global Brokerage owed another $163
million to convertible note holders.
The market capitalization of Global Brokerage, Inc. (known as FXCM,
Inc. until 2017) fell by 90% in 2015 and an additional 58% in
2016. On February 7, 2017 it fell by another 50% with the stock
price ending at $3.45. The share price continued to drop to $2.00
on May 25, 2017 with a market capitalization of about $12 million.
Before Global Brokerage declared their intention to seek bankruptcy
protection in November, 2017, its shares were trading at about $1.30,
and then fell another 27% to $0.95 by November 22.
Forex Capital Markets was founded in 1999 in New York, and was one of
the early developers of online forex trading. Initially, the firm was
called Shalish Capital Markets, but after one year, rebranded as FXCM.
In January 2003,
FXCM entered into a partnership with
Refco group, one
of the largest US futures brokers at the time.
Refco took a 35% stake
FXCM and licensed the
FXCM software for use by its own clients.
Refco filed for bankruptcy on October 17, 2005, a week after a $430
million fraud was discovered, and two months after its initial public
offering of stock. Refco's CEO
Phillip R. Bennett was later convicted
of the fraud.
FXCM became entrenched in the
proceedings for several years.
FXCM expanded overseas when it opened an office in London
which became regulated by the UK Financial Services Authority.
By 2005 the online retail forex market began to grow, though it was
commonly considered a risky market, full of fraud and speculation.
The "dealing desk" or market-maker system of trading with customers
created distrust for retail forex traders. Customers could only trade
directly with their brokers who took the opposite side of the trade.
Whenever the customer profited, the broker would lose money, creating
a conflict of interest. In 2007
FXCM began using the "no dealing desk"
system of trading, stating that all customer trades were made with
independent market-makers and that there would be no conflict of
FXCM and their customers.
In 2008, the self-regulatory organization for the US futures industry,
National Futures Association (NFA), obtained permission from the
Commodity Futures Trading Commission
Commodity Futures Trading Commission (CFTC) to increase the minimum
capital requirements, in staged increments, to $20 million for "Forex
Dealer Members" including FXCM. The increase was in response to the
failures of some forex brokers, and it allowed
FXCM to acquire new
business from some of its smaller competitors who either ceased all
operations or moved out of the US.
Initial public offering
In December 2010,
FXCM went public and began trading on the NYSE,
becoming the first forex broker in the US to issue stock to the
public. The initial public offering price was $14.00 per
FXCM described its no dealing desk trade
When our customer executes a trade on the best price quotation offered
by our FX market makers, we act as a credit intermediary, or riskless
principal, simultaneously entering into offsetting trades with both
the customer and the FX market maker. We earn fees by adding a markup
to the price provided by the FX market makers and generate our trading
revenues based on the volume of transactions, not trading profits or
The following year, in February and March 2011, several class actions
lawsuits were filed against FXCM, alleging fraud and racketeering from
deceptive and unfair trade practices, and misleading shareholders
during the 2010 IPO.
In August 2011, the NFA fined
FXCM $2 million for slippage
FXCM also settled with the CFTC for $6 million for
failure to pay positive slippage to customers.
FXCM also paid clients
restitution of about $8 million.
On October 25, 2011, three debtors, Certified, Inc., Global Bullion
Trading Group, Inc., and WJS Funding, Inc., filed an adversary
complaint in the United States Bankruptcy Court for the Southern
District of Florida against Forex Capital Markets LLC, ODL Securities,
Inc., and ODL Securities, Ltd. (“Defendants”). The complaint
asserts claims under the Federal Bankruptcy Code to recover allegedly
preferential and fraudulent transfers to the Defendants, under the
Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18
U.S.C §1961 et seq., as well as the common law. The complaint seeks
an unspecified amount of compensatory and punitive damages, interests,
In June 2012
FXCM bought a controlling stake in Lucid Markets LLP, a
London-based automated trading group focused on currency trading.
Lucid is currently for sale.
From 2005-January 2017,
FXCM faced a total of 13 CFTC reparations
cases, 17 NFA arbitration decisions, and 8 other regulatory actions in
In February 2014 the UK
Financial Conduct Authority
Financial Conduct Authority (FCA) fined Forex
Capital Markets Ltd and
FXCM Securities Ltd (“
£4,000,000 for slippage violations and for failing to inform the FCA
of the CFTC investigation of the same practices. About £6 million
($10 million) was also paid in restitution to
FXCM UK’s clients.
Swiss franc jump
On January 15, 2015 following a large increase in the price of Swiss
francs, the company lost $225 million and was in breach of regulatory
capital requirements. The next day
FXCM secured a $300 million
loan with a 10% coupon from
Leucadia National Corp in order to meet
its capital requirements. Further terms of the loan were later
released, showing that the coupon rate might rise to 17% or higher and
other limitations were imposed.
Citigroup analysts quoted by Bloomberg
said that the terms of the loan “essentially wiped out” the value
of FXCM’s stock.
Loss of US license
FXCM promised its customers a "no dealing desk" trading system, taking
prices from a number of major banks and market makers. This system
allowed clients to trade the best price at any given time. This is
also known as a direct market access (DMA) system, in contrast to a
market maker system more commonly used by forex brokers. In a "dealing
desk" or market marker system,
FXCM would be the counterparty to every
trade and would profit only when its customers lost money, and would
lose money whenever its customers profited. In a "no dealing desk"
FXCM would act simply as a broker, getting a commission on
every trade, while the banks and market makers took the risk on the
FXCM avoided a conflict of interest.
On February 6, 2017, the CFTC imposed a penalty of $7 million on FXCM
for defrauding its retail customers. The Commission found that a
closely related company was acting as the main market maker for its
trades, and that
FXCM lied to its customers about the market maker.
FXCM received $77 million in "rebates" from the market maker.
The Commission prohibited the company from registering with CFTC,
effectively banning it from the US commodity brokerage industry.
The same day, NFA barred
FXCM from its membership. The company
reacted by selling its US customer base to a rival forex broker Gain
Capital Holdings Inc.
On February 13, 2017
FXCM agreed to pay another fine of $650,000 to
the CFTC to settle charges that
FXCM was undercapitalized by $200
million in January 2015.
As of March 4, 2017 the firm was not accepting customers from many
countries, including Hong Kong, Japan, the Russian Federation,
Singapore, Turkey, Ukraine, the United States, and the US Virgin
Islands. On March 30, 2017 Forex Capital Markets LLC ceased
FXCM no longer advertises the "no dealing desk" system on its main
website, but continues to advertise it on its UK website.
On April 27, 2017
Leucadia National Corp. reported to the US
Securities and Exchange Commission
Securities and Exchange Commission that they had marked down the value
of their equity investment in
FXCM by $130 million. They report
cumulative gains on their original investment of about $300 million
and that they "have nearly recovered the full amount of cash we
invested." They are still owed $123 million in debt and value their
equity position at $187 million.
The value of publicly held shares of Global Brokerage fell below $15
million (about $2.60 per share) for 30 consecutive days on May 2,
NASDAQ to warn Global Brokerage that the shares could
be delisted as early as October 31, 2017. Delisting would
trigger default on FXCM's convertible notes, which might then trigger
default on the debt it owes to Leucadia.
In its first quarter 10Q report to the SEC, Global Brokerage, Inc.
stated that "we believe that the potential delisting raises
substantial doubt about our ability to continue as a going concern as
at May 15, 2017."
Four class action suits against Global Brokerage by shareholders were
consolidated in the U.S. District Court for the Southern District of
New York in May 2017.
On June 6, 2017 Effex Capital, the closely related company indicated
in the complaint filed in February, filed a libel case against NFA.
Lawsuit claims that the NFA falsely accused Effex of co-operating with
FXCM to the detriment of their customers.
Global Brokerage, the majority owner of FXCM, filed a 10-K report on
March 20, 2017 stating:
The Convertible Notes mature on June 15, 2018. At that time, we will
be obligated to repay the aggregate principal amount of the
Convertible Notes. We may not have enough available cash or be able to
obtain financing at that time to meet our repayment obligations
Critics of the industry state that few retail traders have the
experience to make money trading forex. In 2005, Drew Niv, then chief
executive of FXCM, said: "If 15% of day traders are profitable I'd be
New York Times
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Marketing Officer at
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