WASHINGTON, D.C. – The Commodity Futures Trading Commission (CFTC) today announced a settlement with FXDirectDealer, LLC (FXDD) stemming from supervisory failures related to its electronic trading platform. The CFTC alleges that from December 10, 2009, through June 2011, FXDD, a New York-based Retail Foreign Exchange Dealer and Futures Commission Merchant, violated its supervisory obligations by utilizing a trading system that unfairly benefitted the firm at the expense of its customers.
The CFTC’s order requires FXDD to provide full restitution totaling $1,828,261 to approximately 24,900 affected current and former customers. Additionally, FXDD will pay a civil monetary penalty of $914,131. The alleged misconduct involved asymmetrical slippage parameters on FXDD’s trading platform.
According to the CFTC, FXDD allowed price quotes to “slip” between when a customer clicked on a price and when the order was filled. The firm’s system was designed to reject customer orders if the price slipped more than 2 pips in the customer’s favor, re-quoting a less favorable price. However, FXDD would fill customer orders at the original price if the price slipped more than 2 pips *in FXDD’s favor*. This practice allowed FXDD to profit from slippage while preventing customers from benefiting from similar price movements.
“Dealers who offer forex trades to the retail public must do so fairly,” stated David Meister, CFTC Director of Enforcement. “Trading platforms that are secretly designed to favor the house more than the customer are not only unfair, they also violate a firm’s supervisory obligations.”
In addition to the CFTC settlement, FXDD is also paying a $914,131 penalty to the National Futures Association (NFA) to resolve related charges. The CFTC order also mandates FXDD’s cooperation with the NFA regarding the restitution obligation. The case was led by CFTC staff members Thomas Simek, Peter Riggs, Charles Marvine, Rick Glaser, and Richard Wagner.
Source: CFTC.gov
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