IBFX hit for $1 million fine by CFTC for another dip below minimum capital requirements: Was the firm struggling before its exit?

Just two weeks after IBFX exited the US market, selling its entire clientbase of approximately 2,000 North American customers which were still using the proprietary Tradestation platform to OANDA Corporation, the long arm of the regulator has struck.

Japanese electronic trading giant Monex Group’s US subsidiary IBFX, which sold its MetaTrader 4 client base in the US and Australia in September 2014, had continued to provide service to users of its Tradestation platform until two weeks ago, when they were moved to technology-led, OANDA Corporation, which is a highly established company in North America.

Now, with the migration of customers complete, the US Commodity Futures Trading Commission (CFTC) has ordered IBFX (formerly known as Tradestation Forex Inc) to pay a $1 Million Penalty for failing to meet minimum capital requirements, failing to timely report minimum net capital violations, supervisory failures, and violating a prior CFTC Order in which IBFX was fined $600,000 for a series of net capital deficets and also failure to supervise.

The CFTC Order finds that from January 15, 2015, through February 5, 2015, IBFX failed to meet the minimum capital requirements, failed to notify the CFTC of its undercapitalization, and failed to diligently supervise its employees in violation of CFTC Regulations. The Order also settles charges that IBFX violated a prior CFTC Order entered against IBFX on December 10, 2014.

In settling this matter, the CFTC has taken into account IBFX’s substantial remedial actions after it discovered its deficiencies as well as its cooperation with the CFTC, according to the Order.

The order of December 10, 2014 found that December 2011 through June 9, 2014, IBFX violated CFTC Regulations by failing to meet the minimum net capital requirements on three separate occasions.

First, during the period December 2011 to June 2012, IBFX had uncovered foreign currency positions. Based on the corrected charges to capital for these uncovered positions, as calculated on a month-end basis, IBFX failed to meet the minimum net capital requirements for January 31, 2012.

Second, IBFX failed to meet the minimum net capital requirements for a brief period of time on January 9, 2013, due to a typographical error. IBFX immediately discovered this failure, but failed to report the failure to the CFTC until January 11, 2013. Finally, IBFX failed to meet the minimum net capital requirements on June 9, 2014, when software that IBFX installed, but did not fully test prior to installation, resulted in uncovered positions requiring charges to capital.

IBFX’s failure to adequately test the new software, lack of a system to timely detect erroneous trades generated by the new software, and inability to accurately assess and reverse the errors evidence IBFX’s lack of diligent supervision in violation of a CFTC Regulation.

At that time, the CFTC ordered that IBFX pay a $600,000 civil monetary penalty and required IBFX to develop an automated forex exposure monitoring system that will enable the comprehensive real-time monitoring of its actual forex exposure, and adopt and implement risk management procedures regarding 24-hour forex exposure monitoring.

The Order also required IBFX to retain a nationally recognized independent third-party consultant to review and evaluate IBFX’s information technology development and implementation policies and procedures and prepare a written report with recommendations for improvement, as applicable, which IBFX will implement absent extenuating circumstances.

The question that is perhaps pertenant here is, was IBFX struggling before it decided to sell its last remaining clients and exit the US altogether, as continuing to operate below the minimum capital requirements would certainly attract greater regulatory censuring from the CFTC, especially if a third order was made for the same violations.

Last week, FinanceFeeds spoke to OANDA Corporation CMO Drew Izzo, who explained the methodology that OANDA Corporation had put in place in order to seamlessly onboard the former IBFX clients, in particular with regard to their familiarization with the OANDA fxTrade proprietary platform which will now be their trading interface, taking over from the Tradestation platform.