FXCM's Lips Sealed by Impending IPO


In the second in our series of interviews with senior figures from the Forex industry following the release of the final version of the new CFTC regulations, I spoke yesterday with Jason Rogers, FXCM's Brand Ambassador to online communities. I started off asking my standard $64,000 question at the moment about the effect of those new regulations on the forex industry. I asked numerous other questions too, many of which Jason was compelled to answer with "no comment" because of restrictions imposed by FXCM's forthcoming Initial Public Offering. Despite that you will be able to read about FXCM's views on a few other topics of the moment below.

FXCM have recently announced the repatriation of their US domiciled customer's accounts back to the United States from offshore here in the UK. I suggested to Jason that those customers would now be hopping mad about the fact that their hard earned moolah would once more be flying across the Atlantic in a great hurry, for the second time in less than a year! Jason told me that this was very unfortunate, but FXCM had to abide by the law. After consulting with the CFTC, FXCM were clear that the new laws boiled down to "US traders must trade with US brokers". It was equally clear that FXCM therefore had no choice but to bring those funds back home to roost in the United States before the October 18th deadline imposed by the Dodd-Frank Act.

In their discussions with the CFTC, FXCM had pointed out that some traders would no doubt try and circumvent the new laws by opening accounts with offshore brokers anyway, given the attractions of increased leverage, the opportunites for "hedging", and most importantly segregated accounts, which the CFTC has still not insisted upon for retail forex traders in the US. According to Jason the CFTC will legally pursue overseas brokers who take on US domiciled clients, using the memoranda of understanding the US has signed with many other nations worldwide. Jason thought it was "unlikely" that individual forex traders would be pursued in the same way.

Moving on from retail traders, we then discussed the effects of the new regulations on FXCM's introducing brokers. Jason felt that many of the smaller "Mom & Pop" style IBs would simply fail to cope with the impact of the new rules. They may well have some difficulty meeting the new capital requirements, and FXCM were not going to be able to provide a guarantee for every IB that might like to have one. I then asked Jason what would happen to the commissions that up to now had been flowing back to those smaller IBs, particularly since in some cases IBs share such commissions with retail traders as "rebates". Jason told me that he personally had no information on individual IBs, and how the new rules might affect their businesses. He did however add that he thought that ultimately the US public would start to see spot forex in a more positive light, as a result of the enforcement of tighter regulation.

Next I asked Jason about FXCM's growing range of forex trading platforms. I pointed out that following the release of their new Strategy Trader platform into public beta testing, FXCM seemed to be implying that MT4 plus the necessary bridge to their NDD execution engine was in some way inferior to the new platform. Jason told me that whilst the performance would never match that of Strategy Trader and Trading Station II, FXCM would continue to work with Boston Technologies to improve the performance of their bridge, and that such a bridge would "always be necessary". Like Alpari, Jason also assured me that FXCM would continue to support MetaTrader 4 for as long as there was a demand from their customers, and that demand was still strong and being driven at the moment by automated trading using expert advisors (EAs for short). Similarly FXCM's future support for MetaTrader 5 would be driven by demand from their customers, and Jason felt it was for too early to say how that demand might pan out.

The sort of questions we asked Alpari (US) earlier this week about FXCM's future expansion plans were ruled out of bounds because of FXCM's forthcoming IPO. However I did persuade Jason to part with his thoughts on the future of retail forex in general in the United States. He said that in his view there would inevitably be further consolidation. The reduction in leverage will force traders to reduce size, which will reduce brokers income. Taken together with the increased costs associated with complying with all aspects of the new legislation, some smaller brokers would be forced to the conclusion that it was simply not worth continuing to do business in the United States. Jason also thought that in the continuing absence of segregated accounts retail traders would migrate towards bigger, better capitalized brokers. FXCM's balance sheet is coincidentally on public display as part of their IPO!

As we were saying our goodbyes Jason complimented me on the quality of recent posts here on the Trading Gurus blog. I thanked him for that, as well as the generous amount of time he had devoted to our talk, then I hung up.

I don't know about you, but I'm extremely interested to discover whether things do in fact pan out the way FXCM anticipate. The US authorities pursuing overseas brokers through foreign courts sounds to me like a story that will run, and run, and run!

Filed under Regulation by  #

Comments on FXCM's Lips Sealed by Impending IPO Leave a Comment

September 25, 2010

Kasia @ 1:58 pm #

Great post, as usual. I totally agree with Jason Rogers about the quality of the articles on the Trading Gurus blog. It is very unusual to find a high quality blog like you have here with such an excellent content.
Keep doing what you're doing!!

September 26, 2010

Laurence @ 8:16 am #

Thanks Jim, interesting & informative as ever

Leave a Comment

Fields marked by an asterisk (*) are required.