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Forex house FXCM illegally short of capital when Swiss franc devalued: US
[WASHINGTON] US foreign exchange broker FXCM was illegally undercapitalised last year when it was hit by the Swiss franc revaluation and had to be rescued, US regulators charged on Thursday.
The Commodity Futures Trading Commission said it was seeking significant civil fines against FXCM for operating with inadequate capital, which had left its customers at risk of losing their own funds when the company foundered on January 15, 2015 after the Swiss National Bank removed the franc's peg to the weakening euro.
The company, which had about 200,000 customers worldwide and 88,000 in the United States, fell at least US$200 million short of its daily net capital requirement of US$25 million when hit by the Swiss move.
"FXCM's systems were not designed to prevent or diminish the effects of such a market event, leading to increased losses," the CFTC said.
The agency also said FXCM failed to immediately report that it was undercapitalized.
"The United States customers of FXCM were at risk of losing all of their funds if FXCM did not resolve its massive capital shortfall," the CFTC said.
Ultimately FXCM was given a US$279 million cash injection from Leucadia National Corp, in the form of a secured two-year term loan, to steady its finances.