Forex Capital Markets Limited and FXCM Securities Limited (together, FXCM), a US Forex trading group, has been fined £3,200,000 plus any amount of redress (amounting to $9,828,677, which represents the retention of positive price movements which FXCM should have passed on to its customers) that remains unclaimed for breach of Principle 6, £800,000 for breach of Principle 11, and publicly censured for breaches of Principle 6 and the COB rules relating to best execution.
Principle 6 was breached as, from 1 August 2006 to 17 December 2010, FXCM treated its customers unfairly by failing to pass on favourable price movements to its customers and instead retained the benefit. The FCA recognised factors which mitigated the seriousness of FXCM’s breach, for example, the impact on individual trades was typically very limited. The FCA nevertheless considered these breaches to be serious because they involved a systemic and prolonged unfairness in trading terms that reduced customers’ ability to profit from trading in rolling spot forex trades.
Principle 11 was breached as, between July 2010 and August 2011, FXCM failed to be sufficiently open and co-operative and disclose to the FCA information of which it would reasonably expect notice, namely concerning an investigation by US authorities into another company of the FXCM group in relation to the use of asymmetric pricing, which was relevant to the FCA’s investigation. Further to this US investigation, the company concerned paid redress to its US customers. Non-disclosure of the US investigation could have resulted in FXCM avoiding making redress payments to FXCM’s customers who suffered loss. However, the FCA found that this breach was committed inadvertently or negligently, rather than deliberately.
The best execution rules were breached by FXCM failing to pass on positive price movements on rolling spot forex contracts between receipt of an order and its execution, while passing on negative price movements or, in the case of limit orders, not executing the trade. In addition, breaches of the best execution rules occurred by FXCM failing to establish a compliant order execution policy, failing to monitor the effectiveness of its order execution arrangements and failing to review annually its execution policy and execution arrangements.
Given that FXCM’s misconduct occurred both before and after 6 March 2010, the FCA has had regard to the provisions of DEPP in force before and after that date. However, the FCA did not impose a financial penalty, other than disgorgement of profits, in connection with the breach of best execution rules for the period following receipt of incorrect legal advice, which advised that FXCM did not need to comply with the best execution rules set out in the COB rules.
FXCM agreed to settle at an early stage of the investigation, receiving a 20% discount on its fine, which would otherwise have been £5,000,000.