FXCM says notified CFTC, NFA of January 2015 capital shortfall

August 19, 2016 2:08 PM EDT

Arrangement of various world currencies including Chinese Yuan, US Dollar, Euro, British Pound, in this picture illustration taken January 25, 2011. REUTERS/Kacper Pempel/Illustration


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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - U.S. retail broker Forex Capital Markets (NYSE: FXCM) said on Friday it promptly notified the Commodity Futures Trading Commission and the National Futures Association of its capital deficiency on January 15 last year, when the Swiss National Bank moved to abandon the Swiss franc's peg to the euro.

This was contrary to what the CFTC said in its lawsuit against FXCM filed on Thursday. The CFTC said FXCM was under-capitalized for two days in January last year and failed to report that to the commission.

The New York broker eventually disclosed its capital shortfall, but only after the CFTC and NFA initiated contact, according to the CFTC lawsuit.

FXCM is the largest U.S. retail broker, with about 200,000 customers worldwide and 88,000 in the United States.

In its statement, FXCM said following the SNB move, FXCM customers lost approximately $225 million by the close of business on Jan. 15, 2015.

"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," the company said.

"FXCM thereafter promptly notified both the CFTC and the National Futures Association of its net capital shortfall due to the unforeseen SNB Event."

The company added that within hours of that notification, teams of CFTC and NFA personnel were on site at FXCM's offices.

Based on CFTC regulations, FXCM's capital requirement is $25 million.

By the afternoon of Jan. 16, 2015, FXCM said it was able to cure its 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," FXCM said.

The New York-based broker also disputed claims by the CFTC that it guaranteed customers it would not lose money by "zeroing out negative customer balances."

CFTC rules explicitly prohibit a retail currency dealer like FXCM from representing it "will guarantee customers against loss, limit the loss of customers, or not call for or attempt to collect security deposits, margin, or other deposits of customers."

FXCM said it has repeatedly warned its customers of the significant risks of trading currencies and that such trading is appropriate only for individuals who can assume risk of loss in excess of their investment and margin deposit.

In mid-afternoon trading, FXCM was down more than seven percent at $9.46 per share, its lowest in two weeks.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama)



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