US futures brokers fear new capital rules

US futures brokers could be forced out of business if Washington regulators push forward with a plan to increase capital requirements by at least 25 per cent, one of the biggest companies in the sector has warned.

The proposal by the Commodity Futures Trading Commission, which has caused alarm within the industry, is a central part of the Obama administration’s attempt to raise the amount of capital held by financial services companies as it seeks to encourage deleveraging.


The reaction to the CFTC’s proposals highlights the tension emerging between regulators and policymakers, who want to use higher capital requirements to discourage risky activity, and bankers, who fear that too onerous rules will kill off what they see as legitimate business.

The CFTC is proposing to increase to 10 per cent the amount of money that a broker, or “futures commission merchant” (FCM), must set aside from its own funds, to cover unforeseen losses by its clients or as a result of its own trading activities. Currently, that percentage stands at 8 per cent for margin held by an FCM in customer accounts and 4 per cent for non-customer accounts.

In spite of several requests for an extension, the CFTC is insisting that any comments on the proposal be submitted by the end of today.

Newedge, one of the world’s biggest futures brokers, said the plan would mean “FCMs being required to increase their capital by hundreds of millions of dollars”.

“We believe that FCMs that do not carry out nor have access to large amounts of capital in excess of current requirements – but are otherwise financially stable as a result of customer margin deposits and low-risk business models – would be forced to go out of business,” Newedge warned.

Newedge also said it would be unfair to apply an “across-the-board” capital increase without taking into account the fact that some companies trade more on their own account than others.

The Futures Industry Association, which represents FCMs in the US, said the proposal would have “a dramatic impact on the capital requirements of our members”.

The CFTC’s proposal comes as the UK’s Financial Services Authority is also reviewing arrangements for the holding of client positions and margins at clearing houses.

Both the US and UK developments are part of a global re-assessment of the capital required by banks, brokers and financial companies which is likely to result in institutions being required to set aside higher levels of capital.

Anthony Belchambers, chief executive of the London-based Futures and Options Association, said: “It is terribly important that we pay enough attention to the market consequences of severe increases in regulatory capital as we do to making sure that they are properly risk-based.”

http://www.ft.com/cms/s/51fcbdf2-69...dc0.html&_i_referer=http://www.ft.com/home/us

 

Looks like margin requirements for futures will go up.
But how much?

 

Newedge is "one of the biggest companies in the sector"
-am I the only one who has never heard of them?

 

Right, because it was future's exchanges that blew up and needed government back stops not unregulated non futures non exchange products! They want to fix the one exchange traded product that isn't broken, typical.

I was wondering how long it would take for something like the PDT rule to hit futures.

 

It is a merger of fimat and caylon.

 

NewEdge IS one of biggest, formed last year I seem to recall, between Calyon and Fimat, two other firms known the world over, you probably never heard of.

Perversely reminds me of the movie Wall Street:
Wake up, will ya, pal?
If you're not inside, you are outside, OK?
I'm not talking about some$400,000-a-year Wall Street stiff......flying first class and being comfortable. I'm talking about liquid.
Rich enough to have your own jet.
Rich enough not to waste time.
Fifty, a hundred million dollars, Buddy.
A player...

 

Is it illegal to run a futures brokerage in Mexico? Grand Cayman?

 

Each (most) country has a set of requirements, regulation, and oversight. Some countries may not allow foreign clients (have you tried opening a (simple) Swiss bank account as a US citizen lately?) And then there is the marketing. What kind of client will be attracted, and why, to a futures-house based in say Mexico? Sao Paulo anyone?

Dubai, Mumbai, Shanghai, or goodbye.

 

What kind of client will be attracted, and why, to a futures-house based in say Mexico? Sao Paulo anyone?
I dunno, maybe cuz all the US futures houses have died?
I'm lost on this one. How do we trade the nq, es, etc.. with no futures brokers in the US ?

 

Nothing wrong with preparing a plan for regulatory changes, but preparing for no futures brokers in the US? A bit premature (and alarmist) don't you think laddy?

PDT did not eliminate US-equity intraday trading. At this time, it is impossible to know how US-futures accounts and trading will be affected. Just know that changes are coming and keep your eyes and ears open. In the meantime, amassing sums of cash for (possible) changes in account requirements probably isn't a bad idea.