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Forex Capital Markets was founded in 1999 in New York, and was one of the early developers of online forex trading. Initially, the firm was called Shalish Capital Markets, but after one year, rebranded as FXCM. In January 2003, FXCM entered into a partnership with Refco group, one of the largest US futures brokers at the time. Refco took a 35% stake in FXCM and licensed the FXCM software for use by its own clients. Refco filed for bankruptcy on October 17, 2005, a week after a $430 million fraud was discovered, and two months after its initial public offering of stock. Refco’s CEO Phillip R. Bennett was later convicted of the fraud. FXCM became entrenched in the Refco bankruptcy proceedings for several years.
In 2003, FXCM expanded overseas when it opened an office in London which became regulated by the UK Financial Services Authority.
By 2005 the online retail forex market began to grow, though it was commonly considered a risky market, full of fraud and speculation.
The “dealing desk” or market-maker system of trading with customers created distrust for retail forex traders. Customers could only trade directly with their brokers who took the opposite side of the trade. Whenever the customer profited, the broker would lose money, creating a conflict of interest. In 2007 FXCM began using the “no dealing desk” system of trading, stating that all customer trades were made with independent market-makers and that there would be no conflict of interest between FXCM and their customers.
In 2008, the self-regulatory organization for the US futures industry, the National Futures Association (NFA), obtained permission from the Commodity Futures Trading Commission (CFTC) to increase the minimum capital requirements, in staged increments, to $20 million for “Forex Dealer Members” including FXCM. The increase was in response to the failures of some forex brokers, and it allowed FXCM to acquire new business from some of its smaller competitors who either ceased all operations or moved out of the US.
FXCM Swiss franc jump
On January 15, 2015 following a large increase in the price of Swiss francs, the company lost $225 million and was in breach of regulatory capital requirements. The next day FXCM secured a $300 million loan with a 10% coupon from Leucadia National Corp in order to meet its capital requirements. Further terms of the loan were later released, showing that the coupon rate might rise to 17% or higher and other limitations were imposed. Citigroup analysts quoted by Bloomberg said that the terms of the loan “essentially wiped out” the value of FXCM’s stock.