FXCM has formally submitted its reform proposals to the CFTC for comment. We encourage everyone to contact CFTC as well to urge greater protections for the retail forex industry: http://comments.cftc.gov/PublicComme...m.aspx?id=1291 December 14, 2012 Via Mail and Electronic Submission Mr. David Stawick Secretary Commodity Futures Trading Commission 1155 21st Street, N.W. Washington, D.C. 20581 Re: Enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organizations: (RIN3038-AD88) Dear Mr. Stawick: Forex Capital Markets LLC (âFXCMâ) is a retail foreign exchange dealer (âRFEDâ) and Forex Dealer Member of the National Futures Association (âNFAâ). FXCM has been registered with the Commodity Futures Trading Commission (âCFTCâ) as a Futures Commission Merchant (âFCMâ) since 2001 and is one of the leading U.S. firms offering off-exchange forex trading to retail clients around the world. FXCM is proud of its position as an industry leader in retail FX both in the United States and globally. FXCM has been a staunch advocate for increased regulation for the U.S. forex industry and the protection of retail forex customers. FXCM submits these comments in response to the Commissionâs November 14, 2012 rulemaking proposal (the âNovember 14th Proposalâ) concerning âEnhancing Protections Afforded Customers and Customer Funds held by Futures Commission Merchants and Derivatives Clearing Organizations.â FXCM believes that in light of the bankruptcies of MF Global and PFG Best the regulations contained in the November 14th Proposal are necessary. However, we are concerned they do not go far enough in protecting the trading public and would therefore like to propose additional protections. Since the financial crisis of 2008, many FCMs and RFEDs have been struggling financially as the traditional business model for FCMs and RFEDs has come under enormous pressure. FCMs earn commissions on each trade their customers make; however, electronic trading has caused a price competition among FCMs that has resulted in falling commissions throughout the industry. RFEDs earn revenue on the bid/ask spread but tightening spreads in the industry have pressured RFED bottom lines as well. Additionally, interest rates have plummeted depriving FCMs and RFEDs of a large portion of revenue derived from the interest collected on customer deposits. Furthermore, decreased volatility throughout all financial markets has lowered the amount of trading in general. This constant pressure on revenues can result in a firm making aggressive, losing bets with client funds (MF Global) or in outright fraud (PFG Best). It is precisely because of this challenging business climate that we believe the following two proposals be given serious consideration. Require all FCMs and RFEDs to employ a Top Ten Accounting Firm One of the many reasons that Russ Wasendorf Sr. was able to get away with his Ponzi scheme for so long was that PFG Best had very poor internal accounting procedures. While no accounting firm is perfect, there should be much higher accounting standards for FCMs and RFEDs. The Platt Group publishes an annual ranking of public accounting firms that could be used by FCMs and RFEDs. Whether it is top 10 or top 25, FCMs and RFEDs should use a nationally recognized and respected accounting firm that will apply the same accounting standards that publicly traded companies must meet. Require All FCMs and RFEDs to Publish a Consolidated Balance Sheet and Income Statement Once a Quarter Futures Commission Merchants are very unique in the world of finance. They hold customer funds that are supposed to be in segregated accounts but they have no insurance in the event the firm goes bankrupt. The entire system revolves around trust. But with that trust violated something more must be offered to ease the investing publicâs mind, specifically, a complete, fully audited, and publicly disclosed consolidated balance sheet and income statement. Currently, the CFTC publishes monthly âNet Capitalâ reports that disclose to the public how much money a FCM or RFED has set aside in capital. However, that report provides very little insight into how well the company is doing financially. By requiring FCMs and RFEDs to publish a quarterly, consolidated balance sheet and income statement the trading public will know how much risk they are taking with each firm since investors will be able to weigh the liabilities along with the excess capital that a firm has. Furthermore, the published balance sheet and income statement should include everything (i.e. holding companyâs financials) since what happens to other subsidiaries of the company can easily effect the regulated entity. Each company should be required to provide a link to these financial statements on its own homepage so that the public can conduct proper due diligence. Too often, those FCMs and RFEDs that are on the edge of insolvency lure customers in by marketing unsustainable offers (low commissions, account opening bonuses) that temporarily puts off the inevitable. If traders have access to such a firmâs income statement they will be able to see for themselves that these kinds of marketing gimmicks may not be producing revenue for the firm (or even leading to losses) and this will allow the trader to make a safer choice and also discourage firms from engaging in uneconomical business practices. One customer found this out the hard way: http://www.huffingtonpost.com/2012/07/17/pfgbest-peregrine-customer-losses_n_1679825.html âBut Khan was not worried about risk or diversification when he moved his money to PFG Best, he said. He had been aggressively saving for years and wanted to venture into commodities, which can produce high returns though with increased risk, to further grow his $380,000 nest egg. In December, Khan transferred all his money from a Charles Schwab account to PFG Best, attracted by low fees that were half the cost of Schwab's and the faster trading platform.â Had customers like Khan known the poor state of the finances of firms like PFG (who routinely hard sell these illusory discounts) then such a tragedy could have been avoided. In addition, by requiring this additional disclosure customers will be able to watch out for firms who take excessive risks and have abnormally high volatility in their earnings, and other warning signs they may not be aware of. This would require firms to be more vigilant with the risks they are taking. PFG Best highlights the need for putting the public interest ahead of the desire of many FCMs and RFEDs to keep their financials private. FCMs and RFEDs hold customer funds in trust. If a FCM or RFED goes out of business the collateral damage to the firmâs customers and to the confidence of market participants is far worse than with your average business, which is why the standards need to be much higher. In short, any FCM or RFED that holds customer funds in trust needs to accept the costs that come along with that trust. FXCM appreciates the opportunity to offer these comments to the Commission on the November 14th Proposal. Sincerely, Drew Niv Chief Executive Officer Forex Capital Markets LLC 55 Water Street, 50th floor New York, NY 10041
The National Futures Association has put forth some additional customer "safeguard" rules in light of the of the bankruptcies of MF Global and PFG. Again, these are steps in the right direction but we believe requiring firms to publish a quarterly, audited financial statement to be a more effective and comprehensive public safeguard. http://www.nfa.futures.org/news/member-newsletter-2012/121912.HTML NFA enhances monitoring of FCMs, amends forex capital requirements At its November 15 meeting, National Futures Association's (NFA) Board of Directors approved two measures that will further enhance customer protection safeguards. The first measure will enable NFA to make better use of technology in order to better monitor futures commission merchant (FCM) segregation compliance. Secondly, NFA's Board approved rule amendments to increase the capital requirement for FCMs acting as counterparties in off-exchange foreign currency (forex) transactions with eligible contract participants (ECP). FCM daily confirmation system Earlier this year, as part of NFA's ongoing effort to further safeguard customer funds, NFA's Board approved a proposal to develop a daily segregation confirmation system that would require all depositories holding customer segregated and secured amount funds-including banks, clearing FCMs, broker-dealers and money market accounts-to file daily reports reflecting the funds held in segregated and secured amount accounts with each FCM's designated self-regulatory organization (DSRO). The DSRO would then perform an automated comparison of that information with the daily segregation and secured amount reports filed by the FCMs to identify any material discrepancies. In November, NFA's Board approved amendments to Financial Requirements Section 4 in order to implement this new daily confirmation system. The new amendments will require an FCM to instruct its depositories holding segregated, secured amount and cleared swaps customer collateral to report those balances to a third party designated by NFA. The amended rule also states that in order for a depository to be deemed acceptable, it must report the FCM's customer segregated and secured amount balances and cleared swaps customer collateral balances to a third party designated by NFA. The daily conformation system is still under implementation, but the first phase, beginning with banks, is expected to be implemented by December 31. Other categories of depositories will be added in 2013. Increase in capital requirements for FCMs acting as counterparties in forex transactions with ECPs Over the past year, NFA has observed that several NFA Member FCMs are almost exclusively acting as counterparties to forex transactions with ECPs. Specifically, three FCM Members have ceased to act as forex dealer members (FDM) but continue to act as counterparties to forex transactions with ECPs. Because these firms do not act as a counterparty to retail forex transactions, their minimum adjusted net capital requirement is only $1 million pursuant to NFA Financial Requirements Section 1. Given the counterparty nature of these FCMs' forex activities, NFA is concerned that these firms are currently subject to inadequate capital requirements. Specifically, NFA believes there is no sense from a financial safeguard perspective that an FDM that acts as counterparty to a retail forex transaction must maintain at least $20 million in adjusted net capital while an FCM that engages in an identical type transaction with an ECP must only maintain a minimum $1 million in capital. Therefore, NFA's Board approved an amendment to Section 1 that includes a provision requiring an FCM that acts as counterparty to a forex transaction with an ECP to maintain adjusted net capital of at least $20 million. This amendment was submitted to the Commodity Futures Trading Commission for approval on November 20.
I am seeking a broker that offers a daily sweep of the account balance into FDIC-insured accounts, and back again before market open each day. I had such a broker but it was merged and no longer offers this security. If other traders have such a broker AND would recommend them as solid, please contact me. Thank you.
I believe TDAmeritrade / Think or Swim has some such feature with TD Bank USA. However no approach, including this one, is foolproof. (They could start delaying or faking the sweeps or whatever although I have no concerns about that with TDA since it is owned by TD Bank). Also unlimited FDIC insurance ends on Dec. 31, 2012. The limits come back on.
The Futures Industry Association has submitted a comment letter to CFTC requesting the comment period be extended for one month due its concern that "increased costs imposed on FCMs will adversely affect the ability of many FCMs to compete effectively." http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=59019&SearchText= CFTC has received over 30 comment letters regarding their proposals to date. Most of the letters are coming from retail forex/metals traders (many inspired by the events taking place at PFG) asking for additional customer protections for retail forex. You can leave your comments below: http://comments.cftc.gov/PublicComments/CommentForm.aspx?id=1291
I'm sorry but these types of thread are pointless. Those that did business with PFG & others that went bankrupt were gambling money in futures and trading and now they're complaining that they want more "transparency" to protect them from bank runs. All that's going to end up happening is all the small brokers will go out of business & we'll be left with a choice of 5 too-big-to-fail corporations super-closely-tied to regulators & government. People need to take personal responsibility. If your money was lost because you decided you want to trade a leveraged futures account, that's your problem. Your money is at risk regardless of how much regulation their is. This idea that the government is going to protect us from reality is already getting absurd. It's done enough damage to small banks and firms across the country and now we're getting consolidation, shittier products, higher prices, less choices, more government in people's private business. Maybe the reason these firms keep failing is people insist the government oversees and runs them instead of the actual firms themselves. We add on thousands of pages and regulations that cost companies a fortune. As a result, most of the small firms go belly up and we're left with a few shitty choices all tied to regulators and government. If you don't want these firms to go belly-up& investors to lose their money in the future, maybe the change that needs to occur is an actual market-place that isn't directly dictated by the two gangs in Washington. Unless people learn to understand how market places work and why all these regulations they insist on are part of the problem, not the solution, there will be no oversight. Our banking system is already rotting to the core with these gangs in Washington backed by their dozen or so large financial institutions that are hell-bent on destroying competition. The attitude that government must protect us is ridiculous. If you want good firms, let the marketplace determine who fails/succeeds by their business practices. If we keep letting these gangs that caused our mess fix it, you'll never get better quality/choice of firms. They like to tell us that competition is good in the private sector but then they say it's bad and we need to run it. You need to pick one. If you want to keep letting government run the financial world, all we'll get stuck with is more of these crap corporations being looted from the inside by these thugs. Here's an idea so crazy that it may just work: Let trading firms run the trading industry and not government. If no good firms arise (which I don't believe can be the case), don't trade. Your money is always at risk with trading brokers/firms and that's never going to change. We're dealing with invisible leveraged money buying products that don't even exist in reality but are just a figment or our imagination all in a race to make $$ for a select few at the very top of the monetary and financial systems. Let these shit institutions that can;t stay alive without bailouts fail already. Stop the quantitative easing pyramid-scheme and let the market liquidate the assets so we can have a real free-market and real firms run by the firms, not the government, can actually arise. Until then, don't bitch or complain. If you vote for democrats or republicans, your losses are a direction result of your inability to realize that these bafoons aren't out to protect you but to line their own pockets.