It helps to be one of the biggest retail FX brokers in the world, best execution practices and volumes come quite naturally. Robert Mackenzie Smith of FX Week is reporting that FXCM has stopped offering new clients access to its dealing desk. The decision comes from a lack of client demand over the years. FXCM’s NDD has been it’s primary business model since 2007.
The UK Financial Conduct Authority’s (FCA) conducted a recent thematic review into best execution for financial firms, published in July. It has reaffirmed what the public prefers as well evidenced by brokers focusing more on how to enhance their agency models of dealing, which is minimal conflict of interests and best dealing environment for their trades.
The globally regulated broker informed clients and its introducing brokers on August 30th that it would no longer be accepting new clients on its dealing desk, which it had originally rolled out nearly two years ago in response to market competitiveness on spreads. However, the company has not yet given any indication when existing clients will be migrated from using the service.
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Usually offering a choice between a fixed (NDD) markup as it’s easier to hide fees, especially when working with an introducing broker, more clients will have to get used to paying commissions per thousands and millions traded instead of through the spread, in the end the same effect is achieved. However, clients feel more comfortable in trading against other counter-parties other than their broker and wish to know the brokers interests do indeed align with seeing them trade without restriction and not being scared to profit at the expense of the broker acting as principal.
“We still believe the NDD model provides best execution for our clients. The liquidity providers cannot see the clients’ stops, limits, balances and account history, therefore making it more transparent for our customers,” says a spokesperson at FXCM in New York. “The majority of our clients, once assessing the pros and cons of both models, would generally adopt the NDD model anyway, so we felt our dealing desk was no longer becoming a core part of our business.”
A dealing desk usually offers cheaper spreads than a NDD model because the client trades against the broker or dealer directly, meaning in theory a client’s trading history can be monitored and used against it when a price is offered. FXCM claims that by using a NDD model, which just charges a mark-up as an agent to the trade, it is providing best execution to the client.
Screenshot of the FCA’s review on best execution practices
An FXCM spokesperson reiterated that FXCM management always knew NDD was more in line with it’s core business. Even though the choice was always available they knew it’s internal dealing desk was not popular.
Some of those points include how firms structure their own “explicit internal costs”, which comprise a company’s own fees and charges (commission or spread) when executing a transaction for a client. The FCA says “firms can omit their own fees and charges from the assessment”.
“The best execution obligation is not intended to require a firm to compare the results that would be achieved for its clients on the basis of its own commissions and fees with those of another firm’s retail commissions or fees, which may be structured differently or which may relate to differences in the nature of the services provided to clients. This means that a firm need not reduce its commission to the lowest level in the market in order to deliver best execution when dealing with retail clients,” reads the review.
FXCM launched CFDs in 2009 and were always operating on it’s DD, they are are transitioning CFDs to be NDD. Furthermore, firm’s new single-share CFD product will automatically be on that model.
– For the original FX Week article, click here.
– To view the PDF of the FCA’s review of best execution practices, click here.
FXCM advertising it’s no dealing desk platform