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Thread: FXCM CEO Drew Niv Discusses Firms Future after the CHF Crisis

  1. #1
    Hi Everybody,

    I know there have been a lot of questions within the past few weeks some of which I'm not able to answer until they are available for wide release, but our CEO Drew Niv held a QA with Forex Magnates that will help answer a lot of these http://forexmagnates.com/exclusive-f...he-chf-crisis/. I'll continue to provide more answers to your questions as I'm ready to.

    What occurred on January 15th following the SNB announcement? What was the immediate effects of the SNB announcement on the company's systems?
    At the time of this SNB announcement over 3,000 FXCM clients held slightly greater than $1 billion in open positions on EUR/CHF. Those same clients held roughly $80 million of collateral within their accounts. As you probably already know that this was the largest move of a major currency since currencies began floating 1971.
    The EUR/CHF movement was 44 standard deviation moves, while most risk management systems only consider 3-6 standard deviations. The moved wiped out those clients' account equity in addition to generated adverse equity balances owed to FXCM of over $225 million. We believe that the FXCM system operated properly during this event.
    The caveat of our no dealing-desk execution system is that traders are cancel one for one with a liquidity provider. When a customer entered a EUR/CHF trade with FXCM, FXCM Inc. had an identical trade with all our liquidity suppliers. Throughout the historic movement, liquidity became extremely shallow and infrequent, which influenced execution prices. This liquidity problem resulted in some clients using a negative balance.While clients couldn't cover their margin call with us we still needed to cover exactly the identical margin call with all our banks. When a customer profits in the trade FXCM provides the profits to the customer, however, when the customer isn't profitable on that trade FXCM Inc. ends up needing to cover the liquidity provider.
    FXCM ended with a regulatory capital shortfall. Accordingly, FXCM needed to have a loan to cover this equilibrium, which it did. For anybody who still thinks FXCM is running an FX dealing desk, we have demoned that such isn't the case.
    Why do you think many people traded EUR/CHF with FXCM?
    Because we are a no dealing-desk broker and cancel each trade one-for-one with our liquidity suppliers, and only make money on trades not customer losses. We released a study a few years ago called ”traits of effective traders” that seemed at FXCM traders during a lengthy period of time and their general behavior to find what was damaging behavior to stay away from and what worked for clients.The study focuses on what the majority of profitable traders did to increase their odds of succeeding. The study found was that traders who exchanged during silent range-bound market hours just like Asian hours OR that traded rang- bound low-income currency pairs tended to be more profitable.
    Obviously a lot of our opponents who are on the opposite side of their clients' trades did not find this trade to be very helpful to their bottom line, as they lose money when traders profit. We saw a lot of the dealing desk firms begin to increase overnight rollover cost in addition to raise margin requirements to get off these trades their system and that's why FXCM along with other STP brokers had much larger exposure.
    Why did FXCM require an emergency loan with this kind of tough terms?
    As a controlled broker we are required to notify our regulators in a timely fashion when any event occurs that might be deemed sensitive to clients. When we informed the regulators, they took FXCM Inc.'s regulated entities to supplement their respective net capital on an expedited basis.
    We explored multiple debt and equity financing alternatives in a bid to meet the regulator's deadline. The bargain we ended up performing with Leucadia was that the only deal that could and could happen in the very short timeframe we had been given by the regulators. The CEO and the president of Leucadia were here in the office working on the deal.It was a tall order for somebody outside of their FX industry to enter and write a $300 million dollar check. This was. However they see that the sustainability of FXCM, and that was everybody's end goal. We are extremely thankful to Leucadia. The deal enables us to live and fight another day and gives us time to construct shareholder value later on.
    You stated you plan to pay back the loan with proceeds from sales of non-core assets so what exactly are non-core resources and will this be sufficient?
    We announced last week we anticipate that with the proceeds from the sale of some non-core assets and continuing earnings we could meet both near and long-term commnts of our financing, while preserving the strength of our franchise. It is widely known and known that FXCM's core business has always been retail FX; It is the majority of all FXCM's earnings.
    But over the past few years, the business has spent over $250 million dollars creating egic acquisitions building up our non-core businesses, mainly the institutional side as we attempted to diversify the firm. We are seeking to sell some of those non-core resources; However, we aren't in a hurry and are searching to get the highest valuations for these resources.
    We are considering closing or selling smaller controlled entities which require large quantities of funds requirements, but that provide increasingly low return on funds. The latter movement enables us to free up significant amounts of cash that is currently trapped. We think that in the near term we could repay a majority of their loan. That's our goal.
    What happens after 90 days according to your arrangement with Leucadia?
    The agreement says we need to pay back $50 million of this loan and $10 million in fees in 90 days. If we do not cover that $60 million, then we will be assessed an additional $30 million in fees when the loan is due in 2017. So we are going to cover our $60 million and more in 90 days and then go from there. To be clear, the financing doesn't force us to do anything at 90 days.
    Are you going to be selling FXCM?
    I certainly don't anticipate selling FXCM. As I said we will be selling non-core resources but no I do not plan on selling FXCM. That's also why we employed the shareholder rights plan to protect against a hostile takeover. FXCM has been independent for over 15 years and we want to remain that way.
    Are customer funds safe with FXCM?
    Yes. As we have stated, we think FXCM's systems operated properly during this event. I will stress it , FXCM isn't insolvent, hasn't filed for any form of bankruptcy, and is consistent with regulatory capital requirements in the jurisdictions in which it operates. The financing we obtained from Leucadia has strengthened our balance sheet and provides us the chance to cultivate our core business. Together with Leucadia, our pockets are even deeper and we aren't going anyplace. Additionally, all of our controlled entities except the U.S. supply clients with segregated funds. All of our worldwide customer base in our controlled entities minus US clients would be safeguarded under a bankruptcy. Our UK controlled entity throughout the FSCS even offers clients #50,000 per individual in protection. Canada has similar insurance for retail traders of up to $1 million CAD.
    What are the relationships such as with your liquidity suppliers following this event?
    A number of these connections are long-standing relationships. The whole industry took a hit. They understand what occurred. Most everyone stopped trading in EUR/CHF, but half of our liquidity suppliers kept providing prices in all other pairs the whole time. Half of the LPs did stop pricing FXCM on Friday January 16th, but many have returned. We presently only have two suppliers that have not returned, but we are optimistic that they'll soon return. There's still a lot of liquidity on this platform. Most banks and other liquidity providers have beenworking very closely with the FXCM team.
    Where do you visit FXCM in six months from today?
    We'll be well on our way to paying down the loan and continue to cultivate our core franchise. FXCM still gets the ideal platform for retail traders, we nevertheless provide the fairest and more transparent execution in the business and we have a slew of new trading indiors and software that no one at the area is even considering offering their clientele. We will still be here We might just look a little different. Here are a few things we are working to get out at the next six weeks:
    Single Share CFDs -- We are going to be offering the top 200 or so most traded US, UK, French and German stocks. We are going to offer these shares on the equivalent of NDD in FX.
    Improving CFD execution -- Sharpening execution capabilities to coincide with some of the advantages of our FX capabilities for Index and Energy CFDs to eliminate restrictions on stops and limits, allowing APIs, as well as tighter spreads.
    Market Depth in FX -- clients will have the ability to observe the depth of liquidity which will provide them more transparency with execution quality and allow them to make more edued trading decisions.
    Actual Volume indiors -- clients will have a true volume ticker of trades done on the FXCM system, which will show clients' real order flow; they could observe directional volume, so long, short, net or total volume in addition to equilibrium on quantity per device; and finally we have an indior to show that the ratio of actual volume divided into trades per interval. These indiors will let clients compare our trading activity against other independent suppliers who also publish volumes such as the CME, and clients will have the ability to compare execution.
    Sentiment Index -- We'll be providing FXCM's client opinion data in real-time as a default on the platform so clients can see where the remaining clients are.
    These appliions updates And platform features are bringing much more transparency to the retail FX market directed at improving the client experience on the market.
    By means of your inventory price so low, is that an indiion of the health of your business?
    Although it's a fact that FXCM's stock price dropped following the events of January 15th, we don't believe that the current stock price is indiive of the health of the company. The stock price doesn't affect our day to day operations because a company.With the injection of cash from the Leucadia funding, the core retail industry is working entirely as normal. We've got excess regulatory capital in our controlled entities and never needed to pause trading or disrupt customer's trading expertise. As we announced in our company update, daily quantity on the retail side was on pace to establish an all-time company record.
    Why didn't the dealing desk brokers have these types of losses?
    A working desk broker doesn't have offsetting trades. In the event the customer is long a transaction the broker is brief that transaction, so as soon as the customer makes a profit on a transaction the broker loses. When the customer loses on the commerce then the broker is profitable.Obviously on January 15th most customers lost money so the trader was quite profitable. Even for customers that blew through their stops and had negative balances with those firms, the trader doesn't have a liquidity supplier that it owes money to. They could essentially act like the negative balances never occurred and enjoy their profits.
    What's FXCM changing with regards to their risk management systems?
    The main change we will be making is removing currency pairs from the platform that carry significant risk due to over-active manipulation with their respective authorities either from a ceiling, ceiling, peg or band. Given what occurred with EUR/CHF the industry is currently looking very hard at any potentially similar problems, particularly given the increased geopolitical risks in Southern and Eastern Europe.We are also increasing margin requirements for other pairs as well. Some of those changes will be permanent while others might change as geopolitical risks change. The pairs we are removing from the platform were not material to our our revenue. Some of the currencies we are removing comprise DKK, SGD, HKD, PLN and CZK.
    FXCM made some substance changes in margin requirements for customers. Are those changes permanent or temporary in nature?
    When you examine a few of the modifiions we chose to margin requirements, examine them in three distinct egories: 1). Some of the changes we made were demanded by regulators, and therefore we needed to comply with those modifiions. 2. When you look at emerging market currencies, the banks and our liquidity suppliers were increasing margin requirements to eliminate any potential risk of big gaps. 3. Previously liquid Western country currencies, like the DKK or CHF, that currently carry risk because they're manipulated currencies, have become less liquid.Despite what the media thinks about leverage, we know the customers like it and need more, it is the number 1 or number two ask our sales team has been receiving the last week. We understand the significance of this to our customers but we only have to be smart about it going ahead.
    What's Black Thursday's long-term impact on the retail foreign exchange market? In what ways has it changed how the industry is going?
    Banks are increasing their margin requirements, too. A lot of these currencies that carry any sort of geopolitical risk with them are going to lose liquidity and support. Investors always had little faith in emerging market currencies but always thought in Western countries' currencies even if they had been manipulated somehow, but that has gone.
    Switzerland is a Western country and if they could pull on the shenanigans they did with their currency, what is to mention other western countries will not do exactly the same? The market will be quite sceptical since they can only stand to shed; The risk is simply too high today. It is too bad really since these pairs historically had low volatility, were both range-bound and were quite profitable trades for customers.
    - See at: http://forexmagnates.com/exclusive-f...the-chf-crisis

  2. #2
    Once I read this I see why white collar crime is on the rise

  3. #3
    Quote Originally Posted by ;
    after I read this I see why white collar crime is rising
    After reading lots of the articles on this forum, a lot of us white collar folk could see why IQs are down, personal bankruptcies are up, and most forex traders eliminate money.

  4. #4
    Quote Originally Posted by ;
    quote After studying many of the posts on this forum, a lot of us white collar people can see why IQs are down, personal bankruptcies are up, and many forex traders eliminate money.
    Ehm... IQ cant be down by defenition. 100 is always the average, bell curve distribution. Though the tests is adjusted for the score of that population. So mine is 5 points higher from the US then in Europe for a good example. But, its a very inadequate estimation of intelligence. Actually I believe its a quite dumb evaluation. It provides some type of signal I. Sort of like a CCI period 14 or something like this. Crap mostly.

  5. #5
    The first big test for FXCM... will they make there first 3 loan payments on time and what do their revenues look like POST SNB!

  6. #6
    Quote Originally Posted by ;
    quote After reading many of the articles on this forum, many of us white collar people could see why IQs are down, personal bankruptcies are up, and many Currency Market traders lose money.
    Let me guess you must be on parole

  7. #7
    Interview my bum. He asked himself questions and answered them avoiding anything incriminating or difficult to reply. A press release that is sponsored.

  8. #8
    Quote Originally Posted by ;
    Interview my bum. He asked himself questions and answered them avoiding anything or difficult to reply. A press release that is sponsored.
    well said

  9. #9
    FXCM doesn't have any potential. The meeting is really a PR stunt ready by FXCM marketing team. Total bullshit.

    No mention of:
    #8211; total deficiency of risk management or understanding of risk
    #8211; total destruction of equity value for shareholders of FXCM
    #8211; complete deficiency of going concern at FXCM following the punitive Leucadia bargain
    #8211; how customers will be chased for negative equilibrium because of absence of guards in FXCM
    #8211; total avoie of mentioning the bleeding of client funds
    #8211; any mention of the class action lawsuits that will haunt the company for a long time to come
    #8211; etc..

    I remember when smoke started to look around MF Global then they published similar ill-conceived posts in many news outlets but ultimately the shit nonetheless hits the fan.

  10. #10
    Quote Originally Posted by ;
    Interview my ass. He asked himself answered them difficult to answer or avoiding anything incriminating and questions. Just a press release that is sponsored.
    I've really moderated live discussions on such sorts of interviews and though I cannot 100% confirm the accuracy of your statement, it will read like the same pure bullshit.

    Selective journalism. . .Sponsored press. . .Pure bullshit.

    It actually only gives the broadest and most optimistic variant of the outlook from perspective of a CEO and doesn't really tackle the actual truths nor concerns of their open public by means of traders or traders.

    But hey, people eat this shit up, stock price is up 13 percent on close daily.

    Nevertheless looks like the dogs breakfast, but 13 percent means that somebody made money...

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