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US regulators have punished retail currencies trader FXCM for using algorithms to trade against its own clients, in another stinging blow for global watchdogs against aggressive tactics in the mom-and-pop trading industry.

New York-based FCXM has scrapped its US business and agreed to sell its accounts to one-time rival Gain Capital after the Commodity Futures Trading Commission banned two of the company’s founders from the financial services industry and fined them and the company $7m for defrauding customers.

“Full and truthful disclosure to customers and honest discourse with self-regulatory organizations such as the National Futures Association are vital to the integrity and oversight of our markets,” said Gretchen Lowe, chief counsel of the CFTC’s division of enforcement in a statement late on Monday.

“Today’s actions demonstrates that the CFTC is committed to protecting customers from harm in the markets it regulates.”

The CFTC said that between 2009 and 2014, FXCM was false and misleading in its efforts to snag new customers by hiding the fact that it had conflicts of interests with clients.

The company, and founder Drew Niv, gave false statements to the NFA about this relationship, the regulator said. Mr Niv and co-founder William Ahdout have been barred from registering with the CFTC or from engaging in regulated financial activity in future.

The regulator said that, contrary to what FXCM promised its customers, it had an “undisclosed interest” in the price provider that typically executed trades for clients “and thus was taking positions opposite to FXCM’s retail customers”.

Even when that price provider was spun off into a new company, it “remained closely aligned with FXCM”, the regulator states. The new company sent around 70 per cent of its revenues back to FXCM. This relationship was not fully disclosed to regulators. FXCM and the two founders neither admit nor deny the allegations.

The settlement comes as regulators around Europe seek better protections for customers who engage in so-called spread betting on financial markets including currencies.

FXCM said that while it is winding down its US business, it will “continue to provide top-quality trade execution” to its clients. Gain said it hopes to have former FXCM customers on board by the end of this month.

Copyright The Financial Times Limited 2017. All rights reserved.
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