The Blotter: FXDD fined $2.74 million by CFTC

SEC charges multiple firms with short selling violations

This week's regulatory actions:

NEW YORK

CFTC orders FXDirectDealer to pay $2.74 million 

The U.S. Commodity Futures Trading Commission (CFTC) issued an order filing and simultaneously settling charges that, from at least Dec. 10, 2009, until June 2011, FXDirectDealer, LLC (FXDD), a CFTC-registered retail foreign exchange dealer and futures commission merchant headquartered in New York, violated its supervision obligations by employing a trading system that gave FXDD pricing advantages over and harmed thousands of its retail customers.The CFTC requires FXDD to make full restitution of $1,828,261 to FXDD’s current and former customers that were harmed by its violation and imposes a $914,131 civil monetary penalty against FXDD. 

According to the CFTC, FXDD solicits customers to open trading accounts and to buy or sell foreign currency with FXDD taking the other side of the transaction. FXDD streams forex price quotes for particular currency pairs to its customers through its electronic trading platforms. The price quotes offered by FXDD — measured in “pips” — often change, or “slip,” between the time the customer clicks on a price showing on the computer and the time FXDD fills the customer’s order. If the price slips, FXDD’s system employs slippage parameters that determine whether FXDD fills or rejects a customer order at the original price clicked by the customer, the Order finds. 

 According to the CFTC, FXDD used asymmetrical slippage parameters on its principal trading platform, meaning that the system favored FXDD over its customers in slippage situations. Based on these parameters, FXDD rejected a customer’s order when the price slipped more than two pips in the customer’s favor (and instead re-quoted the customer the new, less favorable price), but filled a customer’s order at the original price if the price slipped in FXDD’s favor by more than two pips. As a result, FXDD benefited from slippage of more than two pips in its favor between order placement and order execution, but did not allow its customers to benefit from similar price changes in their favor.  The CFTC further finds that had FXDD employed an adequate supervisory system and diligently supervised its personnel, FXDD would have discovered these problems with the integrity of trades on the platform and would have had the opportunity to correct them before more than 24,900 customer accounts were deprived of $1,828,261.

Separately, FXDD also is paying a penalty of $914,131 to the National Futures Association (NFA) to settle the NFA’s charges arising from the same misconduct. In addition, the CFTC order requires FXDD to cooperate with the NFA in connection with the NFA’s review of FXDD’s compliance with its restitution obligation. 

ILLINOIS

CFTC order Foremost Trading to pay $400,000 

The CFTC issued filed and settled charges against Foremost Trading LLC a registered Introducing broker based in Geneva, Ill., for failing to supervise diligently the handling of certain trading accounts by its officers, employees, and agents. The CFTC requires Foremost to pay a $400,000 civil monetary penalty and cease and desist from violating CFTC regulation 166.3, as charged. 

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