The National Futures Association (NFA) imposed a $600,000 fine on Forex broker IBFX last week over irregularities in reporting. IBFX was formerly known as InterbankFX and is still referred to under this name.
NFA is the U.S. self-regulatory body of the financial sector. The organization's Business Conduct Committee imposed the monetary penalty on Monex Group, of which IBFX is a subsidiary, as a result of failures by IBFX to report trade execution information to Forex Transaction Reporting Execution Surveillance System (Fortress) for most of 2011.
In addition, the committee found that the NFA had encountered difficulties during its probe into the activities of IBFX through 2010 and 2011, due to record-keeping and bookkeeping gaps.
NFA's investigation of IBFX, began in 2011 and later expanded into a probe of the firm's trade execution practices, focusing on IBFX's activities involving price movements which occur between the time at which an order is placed by a customer and executed by the company.
The NFA was unable to fully evaluate the company's trade execution practices as a result of this investigation.
The most recent NFA complaint also alleges that prior to December 2011"²s acquisition of IBFX by Monex Group's US subsidiary TradeStation, the company filed a request to withdraw from NFA membership.
Warehousing/STP
The penalty on IBFX was imposed for two specific practices: Warehousing and STP. Warehousing occurs when a broker acts as the counterparty for trades whose values are less than the notional volume threshold level set by the broker for STP trades. IBFX was ostensibly aggregating the "?warehoused" trades for purposes of risk management in order to earn revenue from the bid/ask spread and from other market moves that these aggregated "?warehoused" trades experienced.
Under the STP model used by Interbank, before a customer ‘s trade (which already included lnterbank's predefined markup) was entered, IBFX would execute the customer's order but only after the firm had filled the offsetting position with a liquidity provider. These transactions could not be reconciled by the NFA and led to further examination into the broker's practices.
IBFX and NFA have agreed on a settlement, which means that IBFX will pay the fine within 30 days of the decision publication and it will cease the faulty practices. The broker neither admits nor denies any guilt regarding the allegations.