Proposed NFA Capital Requirement

Discussion in 'Forex Brokers' started by forexsavior, Jun 28, 2007.

  1. Looks like the media is starting to pick up on the undercapitalization story. Both FX Week and Euromoney did recent stories on what I have been saying for several weeks now:

    Proposed NFA rules seen as catalyst for consolidation in US retail

    US regulators clamp down on retail FX dealers lic%2FshowPage.html%3Fpage%3D459830

    Subscriptions are required for both but here is the money quote from the FX Week:

    The NFA said it has been concerned about the lack of protection for FX customers. "From what we've been seeing and the enforcement actions we've been taking recently, for the protection of the customer in the markets, we really need to raise the minimum capital requirement for these firms," said a Chicago-based NFA spokesman.

    Since March, eight FDMs have fallen under the NFA's early warning requirement of $1.5 million, and the regulator's worries have been heightened as the amount of retail customer funds held by FDMs has increased to more than $1 billion as of May 22.

    The largest FX dealer firms are well clear of the proposed $5 million requirement, according to the CFTC's May 31 report of adjusted net capital holdings, which showed CMS holding $11,512,421, FXCM $55,668,469, FX Solutions $12,650,227, Gain Capital $18,694,143, GFT $47,681,883, and Oanda $35,361,139.

    Once again if regulators are going on the record as saying they don't have any confidence in the manner in which undercapitalized firms operate why should retail fx traders have any?
    #51     Jul 30, 2007
  2. creed


    So when can we expect these fly by night firms to start closing? Since it is becoming clear the NFA is going to pass this rule what comes next?
    #52     Jul 30, 2007
  3. It's been close to two months since I started reporting on Dead Forex Firms Walking. Since my first post much has changed and the list is in need of an update. So here it is, Introducing:

    NFA Dead Forex Firms Walking, version 2.0: (Adjusted Net Capital as of May, 2007, direct from the CFTC:

    Advanced Markets ($1,021,000)
    American National Trading Corp ($1,985,000)
    Bacera Corporation (Shutdown!)
    Cal Finanical Corporation (Shutdown!)
    Direct Forex ($1,406,000)
    E FX Options ($2,631,000)
    Forex Club ($2,873,000)
    FiniFX ($1,314,000)
    Forward Forex (Shutdown!)
    FX Option1 Inc (Shutdown!)
    GFS Futures & Forex ($2,223,000)
    Hamilton Williams ($1,202,000)
    MB Trading ($3,952,000)
    Money Garden ($3,627,000)
    Nations Investments (Shutdown!)
    One World Capital ($1,502,000)
    Performance Capital International ($483,000)
    Royal Forex Trading ($1,088,000)
    SNC Investments ($1,510,000)
    Solid Gold Financial ($2,039,000)
    Spencer Financial (Shutdown!)
    Trend Commodities (Shutdown!)
    United Global Markets (Shutdown!)
    Worldwide Clearing (Shutdown!)
    Wall Street Derivatives ($936,000)

    Unregulated Firms (Buyer Beware)
    GCI (?)
    Cletus' Fishing & Forex (?)

    So there you have it. A total of NINE licensed forex dealer members have recently been closed by the NFA. Anyone still doubt this new $5 million cap requirement rule will be passed soon? I didn't think so. Certainly more closures await the dead forex firms walking in the days ahead. Hopefully you won't have money in one of them when they go under. In any case, I'll be here to report all the gory details.
    #53     Jul 31, 2007
  4. The FX Week article states, "Following redrafting to include industry feedback, the proposals will be presented to the NFA board in August and then to the CFTC, and are not expected to be effective until the end of the year, the NFA explained."

    So basically that gives the dead forex firms walking several more months to put up the money necessary to stay in business. And that gives clients a few more months to search for a new broker. But if I had an account with a dead forex firm walking I wouldn't take a wait and see attitude. I'd take my money out now while I still could because once a firm goes under its every man for himself and there are no guarantees that customers will ever see one penny of their initial deposit.
    #54     Jul 31, 2007
  5. Refco was never really in the question right?
    #55     Jul 31, 2007
  6. LOL!!! Brilliant!
    #56     Aug 1, 2007
  7. As of August 2, 2007, this is where we stand in regards to the NFA proposal to raise capital requirements to $5 million:

    FX Week states, "Following redrafting to include industry feedback, the proposals will be presented to the NFA board in August and then to the CFTC, and are not expected to be effective until the end of the year, the NFA explained."

    So if the proposal passes all the firms in the forex dealer dead pool, which from all appearances are currently meeting their capital requirement, will have several months to meet the new one. The big question is should this pass which will meet it and which ones won't? And for those that cannot meet the new requirement what will happen to the firms, and more importantly the customers of these firms? You could have a situation where one of the proprietors of these firms runs off with customer funds in the last hours. You could also see a situation where the NFA goes in to close a firm only to discover they have no money left and the firm then gets forced into bankruptcy.

    Now, the likelihood of this happening to firms with $3 or $4 million in capital is a lot less than with firms with only $1.5 million in capital. But the whole point of this thread is to point these dangers out to the trading public and then let them draw their own conclusions.
    #57     Aug 2, 2007
  8. Page 42 of the current issue of Currency Trader Magazine (Free Subscription) has an article about the new NFA proposal. It reports on exactly what I have been saying these last few weeks. (

    Here are some key quotes from the article:

    “The NFA wants to raise capital requirements for registered Forex Dealer Members (FDM) to $5 million, plus it wants improved accounting standards.”

    “The proposal could potentially wipe out 90 percent of existing forex brokerages, although it’s likely major consolidation would occur if the rule passes.”

    “Since 2000, the NFA has authorized Forex Dealing licenses to more than 50 firms. However, many of these firms went out of business because they were undercapitalized, and fraud continues to be a problem in the forex brokerage arena.”

    “The NFA estimates the new rules, combined with existing rules, will force firms to have at least $10 million in adjusted net capital to remain in business.”

    “The NFA listed four specific reasons for the rule change:

    1) Trading Spot Forex, which FDMs do, creates more risk than trading futures and options listed on an exchange.
    2) Since spot forex is not a priority under the NFA’s Bankruptcy Code, it’s particularly important for FDMs to have adequate capital.
    3) Two of the three bankruptcy proceedings in which the NFA has taken part in the past four years have involved smaller FDMS…
    4) The Case of CFG Trader which was shut down by the NFA and forced to liquidate all open positions because it was undercapitalized.”

    So this is the third independent media source to confirm what I have been saying. Again, this doesn’t mean that all the firms in the Dead Pool are going under or that they are not currently meeting their requirements. But they are in a very precarious position. When the media is saying that the proposal “could potentially wipe out 90% percent of existing forex brokerages” than traders should sit up and take notice.
    #58     Aug 3, 2007
  9. Breaking News:

    Both the National Futures Association and the CFTC have apparently de-listed Performance Capital International Inc. The NFA says on its website their membership was withdrawn on July 26, 2007. The most recent CFTC report also shows Performance as a member of its "deletions" category right next to FX Option1 Inc and the Cal Financial Corporation.

    It could be that Performance was rolled into the Solid Gold Group as it says it is a member of the "SolidGold Group" on the front page of its website which is still functioning. In any case that is one less firm to report on.

    Another firm that no longer has a functioning website is FiniFX:

    The website says they are "under construction" and the word on the street is that they are no longer accepting new customers. However, they are still a member in good standing with the NFA according to the NFA's website so I won't pronounce them dead quite yet. But it looks like they have one foot in the grave.

    Coming up Next Week:
    1) New CFTC Capital Numbers - Some of the numbers will surprise you
    2) A Three part Series on the Demise of the Concorde Forex Group
    3) The Sordid Saga of Crooklyn native Udo Rotmistrenko

    Enjoy the Weekend!
    #59     Aug 3, 2007
  10. You forgot the most important key quote ....

    "Forex brokerage FXCM has been the most vocal supporter of the rule, although they have received support from some other big firms."
    #60     Aug 4, 2007