What if FXCM hadn’t settled with US regulators? NFA explains

Maria Nikolova

In a court filing just unsealed, NFA briefly explains the procedures that would have been effected in case FXCM had not settled in February 2017.


The legal actions related to FXCM’s settlements with US regulators and the consequences of these settlements continue to develop. The documents filed with the courts provide us with details as to what happened and as to what might have happened, should the company and other parties involved in these events done otherwise.

The United States National Futures Association (NFA) is at present among the Defendants in a case brought by Effex Capital, the company whose business relations with FXCM were among the key factors having led to the February events. Effex alleges that NFA overstepped its regulatory powers by including Effex’s name into the materials it published on its website about the settlement with FXCM. In addition, NFA is alleged to have disclosed Effex Capital’s trade secrets and to have caused the company harm.

NFA has already sought to dismiss Effex’s Complaint, as FinanceFeeds has earlier reported.

Today, FinanceFeeds got access to another document filed by NFA – this document has just been unsealed. It represents a motion by NFA to dismiss the Amended Complaint by Effex Capital, in which the company said NFA made the claims about the relations between Effex and FXCM and stated the name of “Effex Capital” in order to protect the business interests of registered swap dealers and in furtherance of its self-serving efforts to eliminate over-the-counter retail forex trading.

  • What if?

One of the defendants in the case brought by Effex Capital is James P. O’Hara, a member of NFA’s Business Conduct Committee. He was named among the defendants because he signed the NFA Decision and Complaint against FXCM. In the latest court filing, NFA stresses that “O’Hara signed both documents because FXCM settled”.

So, what if FXCM hadn’t settled? The answer is pretty trivial. NFA explains:

“If FXCM had not done so, there would have been a hearing panel, one member of whom would have been “not an NFA Member or Associate or an employee of an NFA Member.”

This is in line with NFA Manual, Compliance Procedures, Rules 3-7, 3-17.

“Moreover, NFA’s rules disqualify from the Business Conduct Committee or hearing panel any person who has “a financial, personal or other direct interest in the matter under consideration.”

  • Is NFA inherently conflicted?

The Association argues that it is irrelevant that Effex alleges NFA is “inherently conflicted” because it is “funded by the firms it oversees” and because NFA’s disciplinary decisions may benefit some NFA firms, as SROs by definition are composed of and funded by the firms they regulate.

Effex has alleged that NFA lacks “functional autonomy” because “NFA’s board of directors is comprised 65% of insiders” that supposedly were in competition with Effex. NFA argues that this argument is simply a frontal attack on the entire concept of self-regulatory organizations. If SROs lost their immunity because their members have industry experience and have board representation, no SRO would ever have immunity. In addition, NFA rules require 35% of its board members to be “Public Representatives,” defined in accordance with the CFTC’s rules for minimizing conflicts of interest in decision making.

  • If NFA erred…

NFA claims that it is for the Commodity Futures Trading Commission, not the Court, to determine whether NFA erred in how it handled the FXCM proceeding, and whether NFA should be required to change its rules along the lines Effex suggests.

  • Trade secrets

According to NFA’s arguments, Effex has failed to plead that the NFA Complaint against FXCM disclosed Effex’s protectable trade secret. Such a secret, NFA notes, cannot be information that merely embarrasses, but must be information that competitors can take and use themselves. Effex insists that it “owns a proprietary . . . pricing system” of this type.

But the question is not what Effex trade secrets may have existed, somewhere. All that matters is whether paragraphs 35 and 36 of the NFA Complaint disclosed a protectable trade secret.

NFA says that all the harms Effex alleges were “due to embarrassment, and none is due to a competitor taking its algorithm and using it based on the information disclosed in the NFA Complaint.”

The case, captioned Effex Capital, LLC et al v. National Futures Association et al (1:17-cv-04245), continues at the Illinois Northern District Court.

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