Proposed NFA Capital Requirement

My intention is not to slander. As an independent voice if you feel I have done so then I will be happy to correct the record, as I did with FXDD when it came to my attention they would not be effected by the proposed rule.

Also, for the record, let me state I am not stating that all the firms on the dead pool list are all destined for the scrap heap. Some of these firms will undoubtedly survive the coming purge. I put these firms on this list for one simple reason, they are below the proposed $5 million cap requirement and as a result their future is in doubt. The average trader has no idea which ones will survive and which ones will not.

Is it unfair that some of the firms that will survive the purge are getting lumped in with the ones that are doomed? Yes, it is. But I don't believe that is slanderous. That's the crowd these firms are currently running with. As soon as those firms leave that crowd, they'll be sitting pretty. If InterbankFX can get a boat load of money from a venture capital firm and recapitalize themselves I'm sure some of the more nimble firms like MB Trading can do the same. So my advice to the MBs on the list is to get a fat investor, pronto. And put the dead pool behind you for good.

By the legal and CORRECT definition of undercapitalization and by the current regulations, such a neighborhood does not exist.

By your incorrect and non-legal definition of undercapitalization, that's true. Granted, that's not the real definition of the word, but why follow real word definitions? Just make up a definition to fit your conclusion.

i haven't openly wept a tear about pollution too in this thread, so obviously, i must be in favor of it.

are we having a discussion about fraud, or one about capitalization requirements? they're not guarrenteed links - as someone pointed out, bigger firms can commit fraud. that's why I'm not talking about the image the industry has received, because we've been debating what a capitalized firm is. i'm not debating the point that some firms commit fraud and as such, could give the industry a bad name. i'm debating your tone. quit trying to change the subject by trying to paint me as the bad guy and answer the charges put upon you. is everyone who questions you a bad guy?

you've put down 30-40 some threads on the subject, and if you google, you've put piles of threads elsewhere. by sheer numbers, you've posted far more against said companies than I have for them. your only answer to me is to question my integrity on the subject. you didn't answer the guy who asked specifically for links to actual reports on what you were saying, you posted links back to your own posts. sadly, he said he wouldn't read this anymore because you couldn't put up.

i'm tired of hearing you state that your opinion is a fact. it's astounding that you argue that your definition of what an undercapitalized firm is = a correct interpretation because its your opinion (which is in essence what you are arguing). It's not legally or factually correct. the 5 million is not a legal fact yet. will it be? probably. is it now? no. to say that you are undercapitalized if you aren't at five million right now is *your opinion* and not factually correct, nor legally correct. i don't think you understand the difference at all. check that, I just think you don't care - and that's why I think you're irresponsible.

i'm just striving for a responsible balance to you tossing out allegations every week. I've said all along that people should be careful and check on things, you don't balance your opinion with anything. that's the difference.

the moderators say you can debate this stuff, and they're right, talking about potential requirements is legit. talking about potential fraud is legit. namecalling and accusations are irresponsible and sensationalism.

worse, you don't even answer who you work for/if you're with a competing broker, which makes it all the more suspicious. i personally (my opinion) think that's because you do work for one of the competitors to those firms, and you realize if you say that you do, you'll lose credibility. of course, if you say you don't work for one, and later someone finds out you do (via ip or whatever), you could have a complaint filed at the NFA for the statements you're making. so you never actually answer the question (that I've seen), that way you can play the middle.

for the record, i don't work for a forex firm.

you might truly be a concerned investor sounding the alarm, but when even the mods question your integrity, that should sound alarm bells in your head that maybe your tone is in the wrong place. granted, they might say the same thing about me I guess.... i just want fairness for all - the firms deserve it as much as their clients.

I am going to admit something I never thought I would say, forexfun is right. Undercapitalization is not the correct word to use to describe the neighborhood the below $5 million firms are in as of right now since these firms are currently meeting their cap requirements. My point is that if this rule is adopted these firms will all be undercapitalized unless they come up with $5 million. This means they are currently in very dangerous territory.

I have never said fraud and capitalization are guaranteed links. They are not. But they do often go hand in hand. So you cannot discuss one without the other.

Forexsavior
Have the clients lost their money from the brokers who shut down ? Please give me a answer for this.

http://www.forexfactory.com/images/misc/progress.gif

It depends on the firm. Customers in all the fraud cases lost their money. A lot of money. Other customers eventually got their money back. UGMFX customers all got their money back. Fortunately, the NFA has nipped some of these in the bud.

[quote=forexsavior;1480328]I Trade FX (-$3,039,000!!!!! Close to Bankruptcy!!!!)
MB Futures ($3,080,000)
Money Garden ($3,399,844)
United Global Markets (Bankrupt)

Just Be careful!

Which is the subject of this thread? fraud or capitalization?

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."
http://www.fxweek.com/public/showPa....Fpage%3D459830

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.

Forexsaviour,

The problem is not the capital requirement, because after it passes, NFA will give FCM’s that do not meet the capital requirement some time to either merge or liquidate and send clients money back home.
The problem is that some brokers don’t offer the higher standard of services, for example their promotional materials contained the following claims: no slippage, guaranteed fills on stop loss and limit orders, price guarantees on market orders, your funds will be protected in the unlikely case of bankruptcy. But of course for you these claims are not SEXY according to your previous post.
Your only concern, here and in other 5 forex forums is YOUR LIST <<NFA Forex Dealer Dead Pool>>.
If you want to protect the traders, inform them for all the brokers with Details and always tell the truth. It is very easy to say anything without any cost for you.
[quote=forexsavior;1478917]I Trade FX -$3,039,000!!!!! (Run Forrest, RUUUNNNN!)
quote]

Forexsavior (Run Forrest RUUUUUNNNN!)

AKForex, he can write about whatever he likes. I'm glad he's out there writing about capital requirements because many people don't realize the importance. As for your point about the materials these brokers distribute, you are correct but he has chosen to write about money. If you want to talk about materials, why don't you start your own thread and inform us about what you find? More information never hurt anyone in this situation. And I still go by the cheesy old saying my Dad taught me "never keep all your eggs in one basket".

"And the truth shall set you free." Thank you.

I think you're right that they'll eventually pass that five million, and then the question will become who can make those requirements, and who will be the member of the "forex follies".

I'll try to read that fxweek url you put up - it asked for a subscription, so I'll try their trial subscription when i get a spare moment from work today to take a look.

Very cute AKforex. But if you really think a firm exagerrating their spreads is on the same par as a firm taking customer money and running off to Argentina then there really is nothing I can say to dissuade you. As Winston Churchill once said after listening to a certain loon's rant over the radio, "against such opinions it is vain to argue. It is a case of Believe it or not..."

I think most customers are concerned about the viability of the firm they trade with first and foremost. And like I said there have been plenty of regulatory actions taken against the big boys. But this NFA proposal is not aimed at them. It's aimed at the poorly capitalized. But I'm all for reading a separate thread about the misdeeds of the big boys. So feel free to get to work...

jamesanderson, i agree with you 1000% he can write about whatever he likes, we live in a free world and for this reason there are the forums BUT at least, he has to tell us all the truth and not rumors.
The only reliable source that i know and i trust is NFA(http://www.nfa.futures.org) . I don't know more details for the brokers than NFA.

Forexsavior, don't worry for my work

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. (www.currencytradermag.com)

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.

Ten Million Dollars? Where are these firms going to get that kind of money? I can see why the reporter said 90% would be wiped out. Looks like I may have to reconsider opening an account with a Swiss firm, since they may be the only ones left standing.

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.
http://www.cftc.gov/files/tm/fcm/tmfcmdata0706.pdf

It could be that Performance was rolled into the Solid Gold 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.
http://www.eforex-asia.com/

Another firm that no longer has a functioning website is FiniFX: http://www.finifx.com/

The website says they are "under construction" and the word on the street is that they are no longer accepting new customers (Merlin my source on this works inside FiniFX itself.) 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!

[quote=forexsavior;1523290]

Coming up Next Week:
1) New CFTC Capital Numbers - Some of the numbers will surprise you
quote]

How did you find that the numbers will surprise us ?

I have spent a lot of time discussing the issue of forex fraud and how this has been one of the motivating factors driving the regulators' desire to raise capital requirements. But the issue of broker dealer insolvency is in many respects more pressing. The failure rate for firms with capital below $5 million is shockingly high. And why is that? Because too many people think running a forex broker dealer is as easy as running a bagel shop. But this next three part series on the demise of Forefront Investments (aka CFG) is evidence of how difficult it is to run a forex brokerage and why as a result of CFG’s collapse the NFA has an even stronger case to raise capital requirements.

I first became interested in the CFG case when an attorney posted this thread at Forex Factory:
(http://www.forexfactory.com/showthread.php?t=40618) asking former customers of CFG to contact him if they were still owed money. Still owed money? That piqued my curiosity. And so I began digging through the wreckage of CFG. Here is what I discovered:

CFG got its license in November of 2003. But its owner, Don Snellgrove, founded the company in 1998. (http://countyads.org/Business.asp?record=10993)

Originally the firm was in the forex training business. Essentially, for a fee, CFG would assign traders a mentor whose job it would be to teach “the forex” to rookie traders. While some customers complained about the ineffectiveness of the training (http://www.ripoffreport.com/reports/0/087/ripoff0087932.htm) there are no indications that CFG was involved in any fraudulent activities. Indeed, Snellgrove had a reputation for being a very religious man and is quoted on his own website as saying, “We sincerely want people to succeed! Galatians 5:1 in the Bible, states that one should not be under bondage. 99% of the people who talk with me are under the bondage of debt. The Forex market is the largest legal cash flow industry in the world and a potential vehicle to achieve success by just about anyone and thus move out of bondage.” (http://www.cfgtrading.com/newsletter/edition01/cfgnews_008.htm)

Unfortunately, Snellgrove’s decision to turn his training business into a full fledged forex broker dealer would not only leave his customers still under the bondage of debt, but transform them into the Gimp from Pulp Fiction after the firm went under and their accounts were frozen.

But before going there it is important to review Snellgrove’s career to date. He was a good and moral man, he had a clean regulatory record, his company was fairly transparent as he had an open door policy with all his customers at his rather large office in Virginia, and he had been in the business since the late nineties. But there was one missing ingredient in this forex broker dealer cake: Snellgrove was poorly capitalized. And that’s why the firm went under. More to come…

Tomorrow- Part II “The Collapse of CFG”

[quote=AKforex;1523326] Please give us a answer.

There are plenty of firms who post moderate Capital Requirements that have plenty of funding behind them and aren't a risk for flight or collapse. These rules are meant to prevent small firms from taking EXCESSIVE RISK in the markets against client positions. If a firm has minimal market exposure, why tie up significant capital when the money can be put to better use? It is important to also note the "haircutting" requirements vary depending on the liquidity of the currency pair exposed. Firms trading many exotic currency and exposing themselves with proprietary positions will tend to have higher net capital requirements.

In addition, I found that article in currencytradermag to be somewhat unprofessional- insinuating only 6 firms remain based on a snapshot of one cftc.gov filing without accurately describing what the report shows. The CFTC report is a great reference, but should be ONE factor when selecting a broker. The NFA website is a great source to view the history of your broker, and if any current regulatory actions are being taken against them. A history of inappropriate sales solicitation by the firm and its APs are a good tipping point that they are in the business to scam as many people as possible. High pressure sales occurs to often in spot FX (and Futures & Options) and shouldn't be taken lightly.

My two cents...

Sean