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FXCM
Company typeSubsidiary
IndustryFinancial services
Founded1999; 25 years ago (1999)
FounderDrew Niv
Key people
Brendan Callan, CEO[1]
ServicesFinancial broker, foreign exchange
ParentLeucadia National Corporation

FXCM, also known as Forex Capital Markets, is a retail foreign exchange broker currently based in London.[2] 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.[3][4] The exchange's operating company, FXCM Group, is owned by Leucadia.[5]

In February 2017, the firm agreed to settle a suit with the U.S. Commodity Futures Trading Commission (CFTC) after FXCM was accused of fraudulent misrepresentation involving its customers and regulators.[6] Its parent company changed its name to Global Brokerage, Inc. (formerly FXCM, Inc.) that month.[7][8] The parent company and three founding partners were ordered to pay a $7 million penalty and withdraw their CFTC registration, effectively ending the exchange's U.S. operations.[6] Its U.S. accounts (around 40,000 in total) were sold to Gain Capital for $375 apiece.[9]

Global Brokerage filed for bankruptcy in November 2017, but officially reorganized in February 2018. While the company technically owns a 51% equity stake in FXCM Group, its agreement with Leucadia and FXCM about future distributions of cash flows places its real economic interest in FXCM at 10 to 50%. Leucadia remains the de facto parent company of the FXCM Group.[5][10]

History

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1999–2008: Founding and Refco stake

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Forex Capital Markets was founded (as Shalish Capital Markets) in 1999 by Drew Niv and five other associates. In 2003, the company sold a 35% equity stake to Refco, a U.S. futures broker. As a part of the agreement, FXCM allowed Refco to license the FXCM software for use by Refco clients. By 2005, FXCM's platform had 70,000 customers and a revenue of roughly $260 million. It also began using a "no dealing desk" model with its trades to mitigate claims of conflicts of interest. In October 2005, Refco filed for bankruptcy protection after it was revealed that its CEO, Phillip R. Bennett, had failed to disclose $430 million in debt.[11][12] [13] Bennett was later convicted of fraud in 2008.[14]

In November 2005, Refco agreed, in part, to sell its 35% stake back (which included 15,000 customer accounts) to FXCM for $110 million.[15] In March 2006, however, Refco's creditors disallowed the deal and, later, denied a separate $130 million bid by FXCM.[16] Refco's stake in FXCM was eventually sold to a consortium of buyers, including Lehman Brothers Holdings.[11]

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In May 2010, FXCM, Inc. purchased the UK-based, ODL Group. FXCM had previously acquired ODL's U.S. business in January 2009. At the time of the 2010 merger, FXCM's trade volumes were around $365 billion per month while ODL's reached between $100 billion and $150 billion per month. The acquisition effectively made FXCM the largest retail forex broker in the world with over 200,000 clients and assets of around $800 million.[12][17][18]

In December 2010, FXCM completed an initial public offering and began trading on the New York Stock Exchange under the ticker symbol, FXCM. Share prices started at $14 with 15,060,000 shares for a total share capital of $211 million.[19][20][21] In August 2011, the National Futures Association (NFA) issued a $2-million fine to FXCM for slippage malpractice. All clients affected by price slippage were compensated within 30 days as part of the terms of the NFA deal.[22][23] In October of that year, the Commodity Futures Trading Commission (CFTC) ordered FXCM to pay $14.2 million in restitution to clients who had not been awarded positive slippage gains.[24][25]

In June 2012, FXCM purchased a controlling stake in Lucid Markets, a London-based automated trading group focused on currency trading. FXCM also entered into a deal with Credit Suisse to develop the FastMatch electronic communication network (ECN). By the end of 2012, FXCM had 170,000 retail and institutional clients (90% of which were individuals).[12][26][27] In 2013, FXCM bought a $12-million note issued by Infinium Capital Management, a high-speed trader based in Chicago.[28] FXCM later purchased five trading desks and some physical assets from Infinium in March 2014.[29]

In February 2014 the UK Financial Conduct Authority (FCA) fined FXCM and FXCM Securities Ltd ("FXCM UK") £4 million for slippage violations and for failing to inform the FCA of the CFTC investigation of the same practices. About £6 million was also paid in restitution to FXCM UK’s clients for a total of £10 million ($16.9 million) in fines.[30][31]

2015–2017: Swiss franc jump and U.S. license loss

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On January 15, 2015 following a large increase in the price of Swiss francs, FXCM lost $225 million and was in breach of regulatory capital requirements.[32] The following day, the company received a $300-million bailout loan with a 10% interest rate from Leucadia in order to meet its capital requirements. Details of the deal showed that the interest rate could go as high as 17%.[33][34] Later in January, FXCM announced that it would be forgiving 90% of its accounts that incurred negative balances as a result of the unexpected Swiss franc price movement.[35][36] In September 2016, Leucadia extended the original two-year loan by one year.[37]

In February 2017, the CFTC fined FXCM, Inc. and three founding partners (including Drew Niv) $7 million for engaging in fraudulent activities. The CFTC found that the company's "no dealing desk" model (known as a direct market access system) routed trades through a market maker, Effex Capital, that was allegedly supported and controlled by FXCM. FXCM was then barred by the CFTC and the NFA as were the three founding partners. In response, FXCM, Inc. changed its name to Global Brokerage, Inc. and named Brendan Callan the interim CEO, replacing Drew Niv. The company also named Jimmy Hallac, a managing director at Leucadia, the chairman.[6][7][8][38][39] All 40,000 of FXCM's U.S. accounts were sold to Gain Capital.[9]

Global Brokerage, Inc. remained listed on NASDAQ under the ticker symbol, "GLBR."[7] In May 2017, Global Brokerage was notified by NASDAQ that the market value of its stocks were not sufficient for continued listing.[40] In August of that year, FXCM sold its stake in the FastMatch ECN for $46.7 million and used that money to repay part of the Leucadia loan. At that point, FXCM still owed $66.8 million on the loan.[41] In October 2017, the FXCM Group terminated a management agreement with Global Brokerage. The following month, FXCM clarified that, while Global Brokerage held a 50.1% equity interest in the company, it held a minority economic interest. Leucadia owned a 49.9% equity share with a 65% economic interest.[42]

2017–present: Ownership by Leucadia

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Global Brokerage, Inc. filed for Chapter 11 bankruptcy in November 2017 and was voluntarily delisted from NASDAQ in December 2017.[42][43][44] Global Brokerage later reorganized out of bankruptcy in February 2018. At that time, however, Global Brokerage's real economic interest in the FXCM Group was between 10 and 50% depending on the amount of distributions FXCM makes.[10] Also in February 2018, FXCM rebranded itself as "FXCM: A Leucadia Company".[5] As of March 2018, FXCM remained the second-largest retail forex broker outside of Japan.[45]

References

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  1. ^ "FXCM Group Elevates Brendan Callan to CEO Following Successful Interim Stint". Finance Magnates. Finance Magnates.
  2. ^ "Exclusive: FXCM UK does not expect market maker repercussions like in the US". LeapRate. May 18, 2017. Retrieved May 18, 2017.
  3. ^ Greenberg, Michael (March 31, 2010). "FXCM presents Forex, commodities and indices on one platform". Finance Magnates. Retrieved May 21, 2018.
  4. ^ Witkowski, Wallace (January 21, 2015). "FXCM raising gold, currency margin requirements". MarketWatch. Retrieved May 21, 2018.
  5. ^ a b c "Exclusive: FXCM rebrands, adds 'Leucadia' into its logo". LeapRate. February 21, 2018. Retrieved May 21, 2018.
  6. ^ a b c Martin, Katie (February 7, 2017). "US regulators slap down FXCM for trading against own clients". Financial Times. Retrieved September 14, 2017.
  7. ^ a b c Linnane, Ciara (February 21, 2017). "FXCM names interim CEO, changes name to Global Brokerage". MarketWatch. Retrieved May 21, 2018.
  8. ^ a b "CFTC Orders Forex Capital Markets, LLC (FXCM), Its Parent Company, FXCM Holdings, LLC and FXCM's Founding Partners, Dror Niv and William Ahdout, to Pay a $7 Million Penalty for FXCM's Defrauding of Retail Forex Customers". Commodity Futures Trading Commission. February 6, 2017. Retrieved May 21, 2018.
  9. ^ a b Nguyen, Lananh (February 24, 2017). "Gain Capital Is Set to Become the Biggest U.S. Retail FX Provider". Bloomberg. Retrieved February 26, 2017.
  10. ^ a b "Global Brokerage successfully exits bankruptcy, convertible notes replaced". LeapRate. February 9, 2018. Retrieved May 21, 2018.
  11. ^ a b Farrell, Maureen (January 16, 2015). "A Brief History of FXCM". The Wall Street Journal. Retrieved May 21, 2018.
  12. ^ a b c Englander, David (November 10, 2012). "A Fast-Growing Money Machine". Barron's. Retrieved May 21, 2018. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  13. ^ "Affiliates trying to rescue their stakes in Refco". The New York Times. December 6, 2005. Retrieved May 21, 2018.
  14. ^ "Ex-Refco Chief Sentenced to 16 Years in Cover-Up". The New York Times. Associated Press. July 4, 2008. ISSN 0362-4331. Retrieved April 23, 2018.
  15. ^ Politi, James; Simonian, Haig (November 11, 2005). "Refco agrees to sell part of forex brokerage". Financial Times. Retrieved May 21, 2018.
  16. ^ McMahon, Chris (January 31, 2007). "Refco FX clients left with little in account". Futures. Retrieved May 21, 2018. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  17. ^ Wilson, Harry (May 4, 2010). "Forex broker ODL accepts US takeover". The Telegraph. Retrieved May 21, 2018.
  18. ^ Greenberg, Michael (May 4, 2010). "FXCM acquires ODL Group to form world's largest Forex broker (Updated)". Finance Magnates. Retrieved May 21, 2018.
  19. ^ Cowan, Lynn (December 3, 2010). "Online Currency Broker Closes Up 6% in Debut". The Wall Street Journal. Retrieved May 21, 2018.
  20. ^ Crum, Rex (December 2, 2010). "FXCM rises 7% following IPO". MarketWatch. Retrieved May 21, 2018.
  21. ^ Greenberg, Michael (December 2, 2010). "FXCM successfully completes IPO, final value $1.05 billion". Finance Magnates. Retrieved May 21, 2018.
  22. ^ Greenberg, Michael (August 13, 2018). "NFA fines FXCM $2 million for slippage malpractices, FXCM will credit clients back". Finance Magnates. Retrieved May 21, 2018.
  23. ^ "NFA levies $2,000,000 monetary sanction against FXCM and orders refunds to customers". National Futures Association. August 12, 2011. Retrieved May 21, 2018.
  24. ^ Gallu, Joshua (October 3, 2011). "FXCM Agrees to Pay $14 Million to Resolve CFTC 'Slippage' Claims". Bloomberg. Retrieved May 21, 2018.
  25. ^ Kilgore, Tomi (February 8, 2017). "FXCM's stock plunge to record low highlights risks to retail currency investors". MarketWatch. Retrieved May 21, 2018.
  26. ^ Szalay, Eva (June 14, 2012). "FXCM grabs 50% controlling stake in Lucid Markets". MarketWatch. Retrieved May 21, 2018.
  27. ^ Greenberg, Michael (June 19, 2012). "Credit Suisse teams up with FXCM in launching FastMatch the new ECN forex platform". Finance Magnates. Retrieved May 21, 2018.
  28. ^ Polansek, Tom (January 9, 2014). "Struggling Infinium Capital negotiates to sell assets to FXCM". Reuters. Retrieved May 21, 2018.
  29. ^ "High-speed trader Infinium stops trading, winds down". Chicago Tribune. March 6, 2014. Retrieved May 21, 2018.
  30. ^ Schäfer, Daniel; Stafford, Philip (February 26, 2014). "Regulator penalises US forex trading group FXCM twice". Financial Times. Retrieved May 21, 2018.
  31. ^ Finberg, Ron (February 26, 2014). "FXCM UK Announces $16.9 Million Settlement with FCA for Asymmetric Slippage". Finance Magnates. Retrieved May 21, 2018.
  32. ^ Schaefer, Steve (January 16, 2015). "Swiss Franc Stunner Claims Victims, Currency Broker FXCM Bludgeoned". Forbes. Retrieved May 21, 2018. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  33. ^ Demos, Telis; Rexrode, Christina (January 16, 2015). "FXCM to Get $300 Million Rescue Package From Jefferies". The Wall Street Journal. Retrieved May 21, 2018.
  34. ^ "FXCM rescue package includes rising interest rate". MarketWatch. January 20, 2015. Retrieved May 21, 2018.
  35. ^ Udland, Myles (January 28, 2015). "Currency Broker FXCM Is Bailing Out Mom And Pop". Business Insider. Retrieved May 21, 2018. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  36. ^ Caronna, Michael (January 28, 2015). "FXCM to 'forgive' most clients for negative balances on Swiss franc move". CNBC. Retrieved May 21, 2018.
  37. ^ Jamerson, Joshua (September 1, 2016). "FXCM, Leucadia Amend Terms of Rescue Package". The Wall Street Journal. Retrieved May 21, 2018.
  38. ^ Green, Robert A. (March 1, 2017). "Learn Why The NFA Barred FXCM And What It Means For Forex Traders". Forbes. Retrieved May 21, 2018. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  39. ^ Goldstein, Steve (February 6, 2017). "FXCM banned by CFTC after taking positions against clients". MarketWatch. Retrieved May 21, 2018.
  40. ^ Nikolova, Maria (May 8, 2017). "FXCM (Global Brokerage) runs into trouble with NASDAQ listing". Finance Feeds. Retrieved May 21, 2018.
  41. ^ Patterson, Jeff (August 14, 2017). "FXCM Closes FastMatch Sale, $66.8m Still Owed to Leucadia". Finance Magnates. Retrieved May 21, 2018.
  42. ^ a b Abdel-Qader, Aziz (December 8, 2017). "Global Brokerage ‎Applies for Voluntary Delisting from Nasdaq Exchange". Finance Magnates. Retrieved May 21, 2018.
  43. ^ "BRIEF-Global Brokerage, Inc. Receives Approximately 78.5% Yes Votes To Move Forward With The Prepackaged Plan Of Reorganization". Reuters. December 11, 2017. Retrieved May 21, 2018.
  44. ^ Golovtchenko, Victor (November 11, 2017). "Breaking: Global Brokerage Files for Bankruptcy, NASDAQ Delisting Pending". Finance Magnates. Retrieved May 21, 2018.
  45. ^ Majewski, Sylwester (March 14, 2018). "Analysis: FXCM Remains in the Top 5 in 2017". Finance Magnates. Retrieved May 21, 2018.
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