Proposed NFA Capital Requirement

I wrote about this in my column last February and then followed it up in the March issue of Euromoney. This is from the column:


Brand new thing

Reputational risk is something that is undoubtedly hard to quantify. But make no mistake, once a reputation gets tarnished, it’s hard to buff it back to a glistening shine again. Last week, I got an email from my muckers at Tradex Capital Markets, an established and reputable company based in Greenwich, Connecticut. It had the words urgent notice in the subject line and warned “friends and investors” to: “Please be advised that there is absolutely no relationship, direct or indirect, between the expelled entity “Tradex Group” and our company, Tradex Capital Markets” (their italics).

The company has found itself inadvertently caught up in the woes of the similarly named Tradex Group, which will be barred permanently from carrying out activities in the US by the National Futures Association (NFA) from February 15. The action was taken because Tradex Group had been, according to the NFA: “allegedly soliciting retail investors to trade off-exchange foreign currency futures and options with its parent company, Tradex Handel & Beratungs.”

The NFA added: “The Commodity Exchange Act explicitly prohibits the offering of forex transactions to retail investors, unless the counter-party is a regulated entity as defined in the act. Tradex AG was not registered as a counter-party. In addition to the permanent ban, Tradex was also ordered to pay $22,000 in restitution to its customers in the United States.”

Tradex Capital’s email told investors: “Our CFTC Registration and NFA membership (NFA No. 0299045) are current and in good standing, and we have a spotless compliance and regulatory record. As our investors know, we do not and have never offered any retail currency products or services. We have never been involved in any regulatory action, NFA arbitration, or CFTC reparations proceedings. All our principals and officers are also registered and in good standing.”

There’s more to say about Tradex Group. I’ve spoken to three individuals connected to the company and there’s a lot of mud-slinging and accusations being made, which I shall report in March’s issue of Euromoney.

Tradex Capital will ultimately be unaffected by the shenanigans at the now barred Tradex Group. Its track record is sound and older readers will remember its legendary chairman Rony Schläpfer from his role in the 1980s documentary Billion dollar day. Last November, I joked with a mate at the company that it should rebrand because it was easy to see how investors got it confused with the other mob. This incident shows how fragile a reputation is and how it can be potentially damaged even when there is no actual connection between two companies.

 

Nations LLC Goes Bankrupt

I hate to say I told you so, but, I told you so. Nations LLC has posted on their website that they are officially bankrupt and that “it does not appear likely that there will be sufficient funds to pay all claims of creditors and customers in full.” This is precisely what I have been warning about. When you trade with a poorly capitalized firm you are at much greater risk of losing your money because in the forex industry poorly capitalized firms have a terrible track record (this year alone over a dozen have gone out of business.) This is precisely why the NFA has raised capital requirements to $5 million. And as with One World Capital I put out a warning on Nations well before they started taking customer funds hostage.

Here is what I said on July 19, 2007:

Then on July 24, 2007 the NFA closed Nations:

On September 6, 2007 the CFTC then Dropped the Hammer on Nations:

This week this statement appeared on Nations Website
www.nationsllc.com

Real people have lost real money, not because they took trading losses but because they invested their money in a firm that was poorly capitalized. Don’t make the same mistake they did. Don’t trade with a poorly capitalized firm.

 

I saw the Oanda guys last night - did you lot talk about their new capital injection? $100 mln to shore up the balance sheet.

 

One good reason to ensure your name is not used by others. Which was formed first? If so, they should have considered a legal challenge to another firm for using so similar a name in a similar industry.

Think Motorola would go after another company in the electronics industry that called themselves something like Motorola Radios?

World Wrestling Federation had to change to WWE, after the World Wildlife Fund won the right to sole use of WWF...

 

NFA Bounces the Rubble

The National Futures Association appears to be chucking a couple final spears into the bloated carcasses of two former dead pool brokers (Trend Commodities Limited Partnership and the Bacera Corporation.)

Trend Commodities has been permanently shut down and banned from NFA membership (http://www.nfa.futures.org/basicnet/Case.aspx?entityid=0358048&case=07BCC00033&contrib=NFA) while the Bacera Corporation was fined $50,000.

Of interest in the Bacera case was this statement, "The Committee found that Bacera failed to maintain required adjusted net capital, failed to give required notice of being below its minimum net capital requirement, and failed to take required capital charges and maintain accurate records." (http://www.nfa.futures.org/news/newsRel.asp?ArticleID=1960)

Again, it's all about capitalization. Firms that have adequate capital don't run into these kinds of problems. Firms that are poorly capitalized continually run into these kinds of problems and often times go out of business, in some cases taking customers down to the bottom of the ocean with them. It's that simple.

 

When Forex funds are segregated like Futures, I likely would open an account. Otherwise, who needs the extra risk?

 

There are a few FX firms that have segregated accounts.

 

Besides FXCM who has segregated accounts? I would like to know. Thank you.

 

At risk of being called a shill I'll admit they're the only ones I know of.

I asked GFT this one time and they acted like they didn't know what I was asking.

 

lol.

does Alpari UK offer them? I'm not sure how the FSA regulation works, maybe someone more experienced with the UK/FSA can chime in here.