Proposed NFA Capital Requirement

The last few weeks has seen the NFA foreclosing on a lot of forex dealers who are undercapitalized. The following firms have been shut down as a result:

1) United Global Markets, LLC
Today the CEO just sent an email out to clients saying they were going out of business because they could not meet their capital requirements.

2) Trend Commodities Limited
On June 19 the NFA shuttered Trend Commodities due to fraud and for failing to meet their capital requirements.

3) Spot FX Clearing Corp
On June 14 the NFA shuttered SpotFX due to fraud and for failing to meet their capital requirements.

4) FX Option1 Inc.
On June 7 the NFA shuttered FX Option1 due to fraud and for failing to have adequate security deposits for customers.

5) Spencer Financial LLC
On May 17 the NFA shuttered Spencer Financial due to fraud and for failing to meet their capital requirements.

6) Alpha Forex
On May 14 the NFA shuttered Alpha due to fraud and for failing to meet their capital requirements.

If you have money in a small forex dealer get out now! The NFA is raising capital requirements to $5 million which means a lot of the smaller firms are about to die off just like their predecesors listed above. As such I'm starting a "dead pool" for the following firms who barely have enough capital to stay afloat. It's only a matter of time before they go under. I'll update this as each firm keels over:

Dead Pool Current Net Capital[LIST REMOVED]
see post 187 for latest list...
http://www.forexfactory.com/showthre...=35930&page=13



Source: CFTC (http://www.cftc.gov/files/tm/fcm/tmfcmdata0704.pdf)

Unless you want to end up at the end of a creditor's line in bankruptcy court you best get your money and run like the wind...

I'm sure a lot of people will appreciate you filtering these out

Do you think the Tradition Group, Compagnie Financière Tradition won't be able to come up with 5 mil to keep FXDD going?

I would guess Tradition could probably pony up the dough. But if they're smart they'll do it fast because the longer they take to pony up the dough the more likely it is they don't have it or don't want to put it up as capital and could just shut fxdd down. That is what happened to United Global Markets LLC who just went out of business today.

don't like the way fxdd tries to hide behind tradition group, fxdd is not register with n.f.a.

i cant seem to find where this new 5 mill cap req. is stated on the nfa page. Could you please post a link.

Thanks,
Mike

Exsert from artical.

I don't think that that's what Congress had in mind. Neither does the CFTC. The Commission has a pending enforcement action against one affiliate in which it alleges, among other things, that the affiliate does not qualify under the CFTC's risk-assessment provisions. A ruling in the CFTC's favor would, in part, require FCMs with retail forex affiliates to maintain $5 million in adjusted net capital. However, since that case may take some time to work its way through the federal court system, NFA's Board recently adopted a rule raising the minimum capital requirement for FCMs with retail forex affiliates from $250,000 to $5 million. We hope these efforts will solve the shell FCM problem without the need for legislative relief.

Link: http://72.14.253.104/search?q=cache:...nt=netscape-pp

thank you forgive me if this is newbie question, but this article/speech is dated 2005?

am I missing something

Thanks

Well its all I could find on it.

thanks numbers just making sure it wasn't just me not finding it as something recent

Thanks,
Mike

well i found the source of this "information". It is from rumors that Felix has been hearing. Things get passed as fact too much before they are actually one.


Here is felix's email

--------------------------------


FA has been coming down pretty hard on the forex industry lately. They have shut down 4 brokers so far this month, due to fraud and/or lack of funding, and they are just warming up.
As far as I know, and I may be wrong, but the names of the brokers that were shut down in June are the following:
FX Option Inc.
Spot FX Clearing Corporation
Trend Commodities Limited
United Global Markets
You can search them on google to find the website address. Again, if I am wrong about any of these firms, I apologize.

I've been receiving information from some reliable sources, but it's not confirmed yet, but it seems like NFA will shut down any broker that has less than $5 million in funds. I am not sure of the exact time frame, but it seems like in the next month or two. That's not the real problem. The real problem is that I believe some of these bucketshops are not well managed, and when the time comes that they have to go out of business and give all the money back to their clients, they may not have enough. Or even if they do, it's entirely possible that some of their CEOs may run away with the funds offshore. So I suggest that you check on your broker's financial capability by going to this link.
http://www.cftc.gov/files/tm/fcm/tmfcmdata0704.pdf
Don't get me wrong, I do believe that some serious firms that currently don't have enough funds could get enough funds to meet the requirements, but I do think that your safety of funds in some smaller firms could be under risk.

The rumor on the street that NFA will raise capital requirement to 9 million by end of this year, but it's still a rumor. If that happens, I am sure we'll have most small forex brokers go out of business, and we'll probably only have 15 or 20 left, which I think is a good thing.

Anyway, check your broker through the link above, and if you feel you could be at risk, perhaps consider taking your money, before it's too late, and the avalanche starts.

I think this is a very important heads up, and I want to make sure that my subscribers like you are taken cared of before everyone else, so don't post this on any forums, until your own funds are secure...

Thanks
-Felix Homogratus (www.forexbastards.com)

I am no expert but from the looks of it this report is not somthing to freekout over. The list has alot of brokers who are near or below the limit of $5mil.

It would be nice to know more info on this. Any experts out there who can shead some light for us?

edit: just saw your post Mike, thanks for finding that.

Oh! Felix, the forexbastard strikes again!

The clean up of the forex brokers has just started.
Looks like the NFA which for a long time was no more than a toothless tiger is now starting to grow some teeth.
This can only be all good in the end for us forex traders. I say get rid of all these scams and bucketshops now. Hopefully everyone gets their money back but I suggest may need to act fast.

Hi all-

Well, looks like someone started a situation in the last 24 hours and I want to talk everyone through exactly what is going on. Let’s start with the facts, then move to the reality, and then maybe a little opinion. As you know, I try not to spend time naming or talking about other brokers specifically. My job is to help you out with EFX and not try to answer questions about (or bad-mouth) another platform.

The story that started all of the boards talking this morning was a post that the NFA is about to move the minimum net capital requirement to $5 million, and that they are closing the doors on a bunch of companies over the last few weeks. Along with about 20 other platforms, we were listed by whomever wrote the post as being “at risk” because we currently show a net cap that is well above the minimum currently required, but we don’t show $5 million.

Now, the clever part of the post that was put out there (you’d have to look at the bigger firms that intentionally maintain a higher net cap to figure out who had the motivation to do this) is that it implies that because six brokers doors were “shuttered” (term used in the post), the other 20 or so are in danger and the NFA is out to kill. This is a fairly ridiculous link. The firms that were closed had problems with their net capital dropping under the CURRENT minimum. In some cases, they were basically out of money. Of course they were closed after the NFA did their due diligence per the guidelines and eventually determined that they were not going to get their net cap back up.

Folks, the NFA is a regulatory body. They want to protect the public, but they also exist because of forex platforms. If they shut them all down unnecessarily, they hurt themselves too. They come around, they charge fees, they do audits, etc. Let’s set some facts straight.

The way we understand it, the NFA is going to vote on July 1 whether to raise the minimum net capital requirement to $5 million, up from the current $1.5 million. If they do approve that (that’s the first IF, nothing changes in the world if they don’t), then member firms will have until January 1, 2008, to get their net capital to $5 million. Do we feel like this would be an issue for us, as we already hold much more than the current requirement and over half of what we need to the potential new requirement? No. So let’s just take the vote at face value, assume that it happens, and then address what it should mean for us in the easiest solution. Nothing. I should point out that it wasn’t long ago that the NFA raised the minimum net capital from a few hundred thousand to $1.5 million, and we met that without any issues even though we weren’t showing it before.

They aren’t going to walk into all of these firms on July 2 and shut them down. And, just so we’re clear, if the NFA moves the cap requirement up and a firm can’t get the money in to meet the requirement, that doesn’t mean that your money as a customer is affected. Some of the things that I’ve heard over the last 24 hours are so crazy. Here’s one: “If the NFA moves the net cap requirement up and a firm can’t comply, don’t we lose all of our money as the customers of the firm because they have to close?” Huh? No relation. The firm would first need to lose all of their assets and then yours for that to be the case.

Let me talk a little bit about other options for some of the smaller firms. There is nothing that says that any of these firms have to be NFA members. They can operate through the SEC or NASD.

Before I get to what this means in a practical sense, let me post two paragraphs from MB Trading Futures' (our FCM) compliance department dealing with the issue:

"First, the National Futures Association (NFA) has noticed its Forex Dealer Members (FDM) of a new proposal to increase the minimum net capital requirements of those members. The proposal is in the early stages of the approval process; it has not been approved by the NFA Board, which is the minimum requirement.

NFA is simply providing FDMs with an opportunity to respond to the proposal that recommends increasing the minimum net capital requirements of FDMs to $5 million from $1 million (or 5% of total customer liabilities, whichever is greater), which are due on July 6, 2007. NFA will draft a final version of the proposal based on comments received from FDMs. The final version of the proposal will be submitted to NFA’s Board for approval. NFA’s Board could approve the final version or a modified version of the final proposal. Once the proposal is finally approved by the NFA Board, it must be submitted to the CFTC for approval. CFTC could approve the finalized version of the proposal as submitted by the NFA Board or approve a modify version. It is anticipated that the final stage of the approval process will be December 2007 at the earliest."

Now, those are the facts. Let’s talk about what this means in the real world. Why do firms need a net capital in the first place? I find it disturbing the number of people that trade forex and don’t understand how it works. 99% of firms out there are deal desks, including several that are pretending not to be. It doesn’t have anything to do with the size of their spreads or their software. It means ONE thing. They make their income by trading against YOU. You buy, they sell to you. You sell, they buy from you. At the end of the day, it’s very simple. They make money when their customers collectively lose money. Now, stop and think about it for a second. You’re a firm. You have hundreds or even thousands of customers, and you have to provide them with a quote (which you have complete control to move around REGARDLESS of what the real banks are showing on the interbank system). What happens if all of your customers want to buy the EURUSD one day? You’re selling it to them.
Forex is a highly leveraged deal. What if the EURUSD keeps going up? The firm is short and selling more if the customers are buying. While obviously most deal desks make a ton of money, the RISK of being the platform is huge. If you get caught heavy in the wrong direction and the market goes hard against you, you can eat up everything that your firm is worth quickly. And, just so we are clear, if a firm has a $5,000,000 capitalization and then all of their customer money, if they lose $8,000,000 on an “event,” meaning a big loss against their customers, they have no capital, and the customer assets are seized next. That’s the same in any financial business, brokerages and banks included. Whatever capital is required, and then potentially some insurance level for the company or the customers, and then any event that creates a loss that exceeds that and the customer money is at risk. This isn’t just forex. There was a major national stock brokerage firm in the last couple of weeks that went from having millions and millions of dollars to negative $18 million or so due to a bad trade/investment in the bond market. Firm is gone, customers are scrambling. It can happen.

And of course, in reality, just because a firm/brokerage/bank has a huge net capital doesn’t mean that things are safer. They tend to take bigger risks with that money because they need a return on that money. They don’t just leave it sitting in cash. So a firm with a $50,000,000 net capital is probably showing a risk level that is more in line with having that sort of valuation, which means they can get hit just as hard and fast if they don’t know what they are doing as a smaller operation.

Now, what is the situation with us here at EFX? We are, as has been discussed forever on these boards, NOT a deal desk. At all. Remotely. I challenge anyone to suggest differently. We’ll get on a webinar and walk you through it. Your order sits on a server that no one sees and when that order becomes marketable, it hits a bank in the interbank system. We don’t take the other side of your trade. Ever. Therefore, we aren’t at the same level of risk that all of these deal desks are on a daily basis. We pass your order through and settle your exchange of currency at the end of the day between ourselves and the bank that took the trade at the price that your order executed against the bank. We charge you a fee for making that transaction possible. Obviously, it’s working. We have so many banks now in the system that our EURUSD quote spends much of the day under 1 pip. So does the GBPUSD. Ever heard the phrase “When banks compete, you win”? Maybe we should have had that motto first.

So where is our risk of having financial troubles? The biggest risk lies in overseeing our customer accounts. If someone has $1000 in their account and buys 5 GBPUSD and the GBPUSD goes down 180 pips, the account is down to $100. That’s where the customer is at risk, because a news spike could then drop it a quick 40 more pips, and now the customer account has gone negative. We wish that everyone traded with a stop in the system to prevent this situation from arising, but they don’t. So, we have extensive systems in place that includes human and computer monitoring to make sure that accounts that get near zero are watched appropriately. We don’t want to close out a position for a customer, but when people trade without stops and get themselves into that type of situation, of course we have to. We have to protect ourselves and all of our other customers. Beyond that, our risk is really just our operations, the cost of having a back office that does what we do. That is not significant compared to the risk that most deal desks have to show daily.

Now, here’s my opinion. What you are seeing is exactly what we have wanted to see from this industry. It is regulating itself better to protect the consumer (trader). Doing so requires raising the amount of money necessary to do business. This keeps the smaller, less-capitalized players out, which is good for the consumer. We believe that LOWER leverage levels are going to be mandated eventually. No one makes money trading at 400 to 1. They get crushed. 100 to 1 or 50 to 1 as a maximum would be sufficient. The professional traders who make money in this business don’t trade anywhere near that level anyway. The industry needs to enforce better “truth in advertising” laws, and we’re seeing that more and more. You can’t pretend that you aren’t a dealing desk just because people like to hear you say that, but then make your money in the spread. If you aren’t charging a fee for providing a customer with an execution, then by definition, you are a dealing desk. Period. I have no idea if the NFA is actually going to raise the net capital requirement, but we see all of this as a positive as we continue to develop and prepare to deploy Project Omega, and we look forward to further improvements in the industry that help protect the consumer. And of course, we will comply with the guidelines of a regulatory body, as we always have.

Hope this answers everyone’s questions. Maybe after the week of Fourth of July, we will do a special webinar event to talk openly and answer direct questions. I’ll try to set it up with one of our VPs. Trade well.

Justin,
Thanks for the detailed post. After talking on the phone with the NFA a couple of times in the last 12 hours I found that it is difficult for the average customer to get a clear answer concerning the proposed changes to the net capital requirement. Your information is more detailed than anything I was able to find out. You summed it up well.

What was Felix trying to do? Start a run on the brokers and create bunch of Lemings out of us?

Thanks Justin.

This wouldn't be the first time Felix has tried to manipuate people and wreak havoc over nothing.

The news about the NFA shaking up the forex industry by dramatically raising capital requirements has kicked off a lot of speculation. So I gathered everything I have learned about this new NFA proposal and am posting here for your review. As someone who has been burned by a bankrupted forex broker I can tell you it is not a pleasant feeling to watch your funds get sucked into some black hole. So my advice is to stay away from any firm that is not currently meeting the coming $5 million capital requirement. And if you already have money at such a firm, get it out, now. If you don't, you could end up like the poor souls at United Global Markets (UGMFX) who can't get their money out due to an NFA account freeze: http://www.forexfactory.com/showthread.php?t=35197

I read an earlier post from MB Trading and was very disturbed by the blase attitude of the firm (understandable since it is becoming very clear they don't have the capital, else they would have already put it up.) When the NFA makes a proposal like this it has, for the most part, already been decided. The submission for comments is merely a formality. And the CFTC is sure to approve this rule because it is fed up with the fraud rampant amongst smaller, undercapitalized firms. Don't believe me? Read the NFA proposal for yourself and listen to the NFA's reasoning for raising the capital requirement in the first place. It is ALL ABOUT FRAUD. That's why this is a done deal. Use your common sense and remember RefcoFX who right up until their bankruptcy (when all customer accounts were frozen) were telling customers their funds were safe. Do you really want to take that chance?

Who has the Money & Who Doesn't
To find out how much money your broker has goto this link:
http://www.cftc.gov/files/tm/fcm/tmfcmdata0704.pdf

Healthy Forex Firms
FXCM ($51,000,000)
GFT ($48,000,000)
Oanda ($44,000,000)
FX Solutions ($20,000,000)
Gain Capital ($20,000,000)
CMS ($10,000,000)

Dead Firms Walking
One World Capital ($1,105,000)
Velocity4X ($1,587,000)
Direct Forex LLC ($1,523,000)
FiniFX ($1,464,000)
Forex Club ($3,304,000)
GFS Futures & Forex ($3,074,000)
Nations Investments ($1,699,000)
Royal Forex Trading ($1,102,000)
SNC Investments ($1,565,000)
FXDD ($781,000)
I Trade FX (-$3,039,000!!!!! Close to Bankruptcy!!!!)
MB Futures ($3,080,000)
Money Garden ($3,399,844)
United Global Markets (Bankrupt)

Here is the actual NFA proposal to raise capital requirements (below that is the sad email from the CEO of UGMFX stating the firm is going under.) The CFTC is expected to sign off on it this summer. I'll comment further on the proposal in a future posting as it will actually require most firms to have upwards of $10 million in capital when you take into consideration such things as open customer positions and margin levels. In any case, this should be sober reading to anyone who is currently trading at one of the "Dead Firms Walking."

NFA Proposal
The proposals pertain to the minimum adjusted net capital requirement and the concentration charge and set certain requirements for FDMs' internal financial controls.

Minimum Adjusted Net Capital and Concentration Charges

In the past twenty years, there have been nine FCM insolvencies. Since 1990, there have been only two insolvencies by traditional FCMs trading on U.S. exchanges, and no funds in segregated customer accounts were lost in either of those two instances. This is from a population that averages around 250 (over the last 20 years). Even in the Refco matter, the FCM filed for bankruptcy not because customer funds were at risk but, rather, to facilitate the sale of its assets and the transfer of its accounts in connection with the parent company’s insolvency.

The FCM insolvency rate becomes more troubling when FDMs are added to the mix. Of the three bankruptcy or receivership proceedings for insolvency occurring in the last four years, two have involved FDMs (Refco was the third), and they are drawn from the smaller FDM population (averaging around 40). Specifically, in late 2003, an FDM misappropriated almost $2 million of customer funds, which depleted the amount of assets necessary to meet the amounts owed to customers. The Commodity Futures Trading Commission ("CFTC") is still working to try to get back some of the customers’ funds. More recently, NFA took a Member Responsibility Action ("MRA") against an FDM whose liabilities exceeded its assets by over $1 million. The CFTC also brought an emergency action in U.S. District Court, and the Court immediately appointed a receiver who was subsequently able to sell the FDM’s customer accounts. Due to this sale, it appears that the customers were made whole.

This discrepancy between FDMs and FCMs involved in on-exchange transactions is even greater when looking at the number of financial MRAs NFA has issued in the last ten years. During that period, NFA issued twelve MRAs to FCMs for failing to demonstrate compliance with NFA’s financial requirements. Three of these firms were traditional FCMs with an on-exchange business, one was a forex dealer registered as an FCM prior to the advent of the FDM category, and the remaining eight were FDMs.

NFA's concern that one day an FDM might be unable to meet its financial obligations to its customers has heightened as the amount of retail customer funds held by FDMs has increased to over $1 billion. The above described FDM insolvencies have done nothing to abate this concern, particularly with the most recent occurring just months after the $1 million capital requirement became effective. If the receiver had not sold the FDM's accounts, then twice within less than four years customers of FDMs would have lost funds due to an FCM insolvency. Additionally, since March, eight different FDMs have fallen under the early warning requirement of $1.5 million.

One of the reasons for the 2006 increase to the FDM capital requirements was that an FDM’s dealer activities create greater financial risks than the agency transactions involved in traditional exchange-traded futures and options. A second reason is that the need for adequate capital is particularly acute for FDMs since customers trading off-exchange forex have not received a priority under the Bankruptcy Code in the event of a firm’s insolvency. Both of these reasons still exist.

NFA is not alone in recognizing the increased financial risk of acting as a dealer. Congress recognized that acting as a dealer increases financial risk and requires substantially higher capital on the part of the dealer. Pursuant to Section 4c(d)(2)(A) of the Commodity Exchange Act (the "Act") the grantor of a dealer option must maintain at all times a net worth of $5 million. The Commission has likewise recognized the increased financial risk resulting from being a dealer, imposing an adjusted net capital requirement of $2.5 million on leverage transaction merchants ("LTMs").[1]

When the Commission adopted the financial requirements for LTMs in 1984, it noted that the leverage market is "essentially a principals' market" and that the "purchaser of a leverage contract is solely dependent on the LTM for performance on the contract."[2] This is the exact same situation that customers are in when they purchase or sell currencies with an FDM. Further, as with an LTM, an FDM "takes the other side of every [contract] entered into by a [customer]" and the FDM "is the sole guarantor of performance on the [contract]." When trading with an FDM "there is no clearing organization to take the other side of every trade, no FCM guaranty of variation margin to the clearing organization and no clearing organization guaranty fund and assessment power."[3] Due to these factors, the financial requirements for FDMs, like LTMs, must be substantially higher than those for FCMs engaging in agency transactions.

As noted above, the Commission imposed the $2.5 million capital requirement for LTMs in 1984. Based upon the Consumer Price Index, $2.5 million in 1984 dollars would be worth approximately $5 million today. Accordingly, NFA is proposing to raise the minimum adjusted net capital for FDMs to $5 million. An increased capital requirement would result in an FDM having a larger buffer to meet its obligations to its customers. Additionally, an increase in capital requirements for FDMs would ensure that FDMs have a larger financial stake in their forex business.

Along with the increased capital requirement, NFA is proposing to eliminate the concentration charge on significant positions with unregulated counterparties, including customers. The charge is designed, in part, to ensure that an FDM has sufficient capital to pay any losses even if it cannot collect profits due to counterparty defaults. As you know, NFA has been reviewing this concentration charge over the past several months. As part of its comments, at least one FDM suggested imposing a higher capital requirement on FDMs and eliminating the concentration charge. For some firms, eliminating the charge will free up additional capital to meet the increased net capital requirement.

NFA agrees that a higher capital requirement may obviate the necessity for applying the concentration charge. The increased capital requirement provides a greater buffer against counterparty credit risk. NFA would, however, replace the concentration charge with a limitation on the types of firms with which an FDM may maintain assets and cover its exposure for purposes of CFTC Regulation 1.17.

Under this proposal, an FDM may not include assets held by an unregulated person or affiliate in its current assets for purposes of determining its adjusted net capital, unless the unregulated person or affiliate qualifies for an exemption under current NFA Financial Requirements Section 11(b) and 11(c), respectively.[4] Similarly, positions entered into to cover an FDM’s exposure could not be counted for purposes of avoiding the haircuts imposed by CFTC Regulation 1.17 unless the counterparty is an entity that qualifies for an exemption under current NFA Financial Requirements Section 11(b). Under that provision, entities that qualify for an exemption include U.S. banks; NASD-member broker-dealers; NFA-Member FCMs; state-regulated insurance companies; banks, broker-dealers, FCMs, and insurance companies regulated in certain foreign jurisdictions; and other entities approved by NFA. Positions entered into with an affiliate to cover an FDM's exposure could not be counted for purposes of avoiding the CFTC haircut unless NFA has issued an exemption for the affiliate under the more limited circumstances that currently qualify for an affiliate exemption under NFA Financial Requirements Section 11(c). Customer positions on the FDM’s platform could be netted against each other, but this netting could not include positions with affiliates.

Internal Financial Controls

NFA also has concerns over the lack of adequate internal controls some FDMs have over their financial books and records. In the past year alone, NFA took two MRAs against FDMs that were under their minimum capital requirements. In both cases, the firms had inadequate internal controls over their financial books and records. In NFA’s experience, over the past few years many firms have entered the retail forex business with limited business and financial expertise. Some of these firms also use unknowledgeable personnel to handle their day-to-day bookkeeping. Furthermore, the fact that these are dealer markets makes the financial recordkeeping more complex than it is for a firm that is strictly an intermediary. Our experience also shows that the financial problems at these firms are compounded by the fact that many of the new FDMs—and even some of the more established ones—use relatively unknown accounting firms that may not have experience auditing companies with more complex financial requirements. As a result, FDMs have a much higher incidence of financial problems than traditional FCMs.

This situation concerns staff, and we recommend adopting a new rule to ensure that FDMs have proper internal controls and a means to evaluate those controls. Proposed Financial Requirements Section 15 has three prongs.

· It requires new FDMs to provide NFA with an internal control report prepared and certified by an independent public accountant qualified to certify financial statements for public companies (i.e., a firm registered and in good standing with the Public Company Accounting Oversight Board). The Member would be required to provide this report before commencing its retail forex business. The rule would also authorize NFA staff to require an FDM to provide subsequent internal control reports if circumstances warranted.

· The rule would authorize NFA staff -- in appropriate circumstances -- to require an FDM's annual financial statements to be certified by an independent public accountant qualified to certify financial statements for public companies. This requirement will give FDMs the freedom to choose other auditors unless NFA has reason to be concerned about the firm's financial statements.

· Each FDM would be required to have an AP/principal who is responsible for supervising the firm’s financial functions. This individual would be subject to discipline if the firm’s internal controls are inadequate in their design or because they are not followed. Staff also proposes to amend the forex interpretive notice to clarify that part of this supervisory responsibility includes hiring and retaining qualified accounting staff and, unless the firm is a public company with an independent audit committee, to research and recommend the firm's independent auditor.

Mr. Stephen Leahy

Chief Financial Officer

United Global Markets, LLC

20 Park Plaza, Suite 1000

Boston, MA 02116

Tel # (617) 357-5122

[email protected]

Dear Valued Client:

United Global Markets (UGMFX) has been notified that we are in violation of CFTC Regulation 1.17(a)(4) by our regulatory body, the National Futures Association. We have been notified that we fall below the minimum Adjusted Net Capital requirements of $1,000,000 and therefore may not allow clients to open new positions until we increase our own capital.

To be clear, United Global Markets has more than enough cash assets as compared to our liabilities to our clients. But we do not have $1,000,000 of our own liquid assets which is the NFA’s required minimum.

We are speaking to an institutional partner that has both more than the capital requirements AND shares our philosophy of treating clients fairly. However as with most large financial institutions, they have not been able to due their due diligence on United Global Markets in the short time period since the NFA’s proposed changes to Financial Requirements.

Therefore, in compliance with the NFA-issued notice of violation of CFTC Regulation 1-17(a)(4), our clients may only close open positions and not initiate new positions until further notice. Additionally we may not accept new client accounts or further funds from existing clients.

For those who wish to withdraw funds, please fax or e-mail a Withdrawal Request Form and we will process quickly.

http://www.ugmfx.com/downloads/Withdrawal_funds.pdf