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Proposed NFA Capital Requirement

  • #461
  • Oct 23, 2007 10:59am Oct 23, 2007 10:59am
The NFA made a new announcement about the coming increase in Capital Requirements stated below:

Quote
NFA announces effective date for increased minimum net capital requirements for Forex Dealer Members

Beginning on December 21, 2007, NFA Forex Dealer Members (FDMs) will be required to maintain a minimum net capital requirement of $5 million. The increase also raises to $10 million the amount of capital required for a security deposit exemption under NFA Financial Requirements Section 12(b). The amendments to NFA Financial Requirements Section 11 and the Interpretive Notice entitled "Forex Transactions" were approved by the Commodity Futures Trading Commission (CFTC) in late September.
"We have taken these steps because a Forex Dealer Member's activities create greater financial risks than the type of transactions involved in traditional exchange-traded futures and options," says NFA General Counsel Tom Sexton. "The increased capital requirement will result in greater customer protection."

FDM capital requirements have been a great cause of concern recently. During the past ten years, NFA has issued 11 emergency enforcement actions against FDMs for failing to demonstrate compliance with NFA financial requirements. In addition, since March 2007, nine different FDMs have fallen under the early warning requirement of $1.5 million.
"Customers trading off-exchange forex do not receive a priority under the Bankruptcy Code in the event of a firm's insolvency," says Sexton, "so it's crucial that FDMs have adequate capital."

NFA is closely monitoring its FDMs to ensure that those firms that wish to continue operating past December 21 will take the necessary steps to meet their new financial requirements.

The following firms, according to the latest CFTC Report, do not meet the coming $5 million requirement:

Hamilton Williams ($1,100,000)
IG Financial Markets ($1,014,000)
One World Capital ($1,170,000)
Wall Street Derivatives ($1,237,000)
SNC Investments ($1,247,000)
Advanced Markets ($1,269,000)
Direct Forex ($1,406,000)
Solid Gold Financial ($2,010,000)
CMC Markets ($2,806,000)
E FX Options ($3,055,000)
Forex Club ($3,308,000)
GFS Futures & Forex ($3,403,000)
MB Trading ($4,452,000)
Easy Forex ($4,628,000)
  • #462
  • Oct 24, 2007 6:17am Oct 24, 2007 6:17am
Quoting fxchant
The NFA IS the industry here. It is made up of people that are lobbied by the industry, who the industry pays.
I tend to agree with you on many points fxchant, but if you're right about the above, the NFA's recent move is hard to understand. If they are proposing turing over governance to the CFTC... doesn't that put the NFA out of business?
  • #463
  • Oct 24, 2007 8:47am Oct 24, 2007 8:47am
Quoting Pip Hunter E
I tend to agree with you on many points fxchant, but if you're right about the above, the NFA's recent move is hard to understand. If they are proposing turing over governance to the CFTC... doesn't that put the NFA out of business?
I just like to focus on these comments from Dan Roth, President of the NFA. Evidently, he's not nearly as concerned as forexsavior that most of the legitimate firms will have any trouble raising money to meet the requirement:

1. Which is the expected impact of the new NFA's requirements in the FX business?

NFA's new capital requirements for Forex Dealer Members ($5 million) become effective on December 21, 2007. We have been contacting our Forex Dealer Members that currently do not have $5 million in capital to determine what actions they will be taking within the next two months to meet their new requirements. Most firms have indicated they will infuse additional capital in their business. At this point, it is unclear whether or not the new financial requirements will impact the number of forex firms in operation.
FXChant Singing the World of Forex
  • #464
  • Oct 24, 2007 9:41am Oct 24, 2007 9:41am
Mmmmkay, but you didn't really answer my question....
  • #465
  • Oct 24, 2007 1:39pm Oct 24, 2007 1:39pm
Quoting Pip Hunter E
Mmmmkay, but you didn't really answer my question....
The NFA has largely been a rubber stamp for the CFTC. I don't think much will change.
FXChant Singing the World of Forex
  • #466
  • Oct 24, 2007 5:24pm Oct 24, 2007 5:24pm
Quoting fxchant
The NFA has largely been a rubber stamp for the CFTC. I don't think much will change.
Time will tell...
  • #467
  • Oct 26, 2007 12:16am Oct 26, 2007 12:16am
Quoting fx_geezer
Time will tell...
The reason I've raised the point, is that if the NFA is shoved about by heavy lobbying as it seems is the suggestion by fxchant, and regulatory control is handed over to the CFTC (which I don't think anyone would say is shoved around by any industry group), then the NFA would be putting themselves out of business by handing over control to the CFTC.

Just some thoughts. I like to test assumptions.
  • #468
  • Oct 29, 2007 7:16am Oct 29, 2007 7:16am
Thanks for the warning. Do you have any news about FXDD? I am not sure whether I should transfer money to other brokers now.



Quoting forexsavior
The CFTC has just released the latest Adjusted Net Capital Numbers.
http://www.cftc.gov/marketreports/fi...fcms/index.htm

Now that the NFA has officially raised the minimum capital requirement to $5 million (http://www.nfa.futures.org/news/news...ArticleID=1942) these numbers are more important than ever so pay close attention everyone.

Poorly Capitalized Firms
Advanced Markets ($1,042,000)
American National Trading Corp (Merged with PFG)
Bacera Corporation (Shutdown!)
Cal Financial Corporation (Shutdown!)
Direct Forex ($1,117,000)
Easy Forex ($4,731,000)
E FX Options ($3,342,000)
Forex Club ($3,715,000)
FiniFX (Not Accepting New Customers)
Forward Forex (Shutdown!)
FX Option1 Inc (Shutdown!)
GFS Futures & Forex ($3,259,000)
Hamilton Williams ($1,004,000)
MB Trading ($2,393,000)
Nations Investments (Shutdown!)
One World Capital ($1,078,000)
Performance Capital International (Vanished)
Royal Forex Trading (Merged with IKON)
SNC Investments ($1,130,000)
Solid Gold Financial ($1,955,000)
Spencer Financial (Shutdown!)
Trend Commodities (Shutdown!)
United Global Markets (Shutdown!)
Worldwide Clearing (Shutdown!)
Wall Street Derivatives ($1,220,000)

Unregulated Firms (Buyer Beware)
FXDD (?)
GCI (?)
WestCapFX (?)
ACM (?)
MIG (?)
DukasCopy (?)
GFX Group (Forex.CH) (?)
Crown Forex (?)
Krusty's Currency Trading (?)
Tradex Swiss AG (Shutdown!)
NorthFinance (?)

We have just about reached the time for choosing. The brokers in the Dead Pool have known about the NFA’s plans to increase capital requirements for some time now. And yet most have not made much of an effort to increase their reported adjusted net capital (with the exception of Money Garden who just raised the reported capital to $5 million. As a result they have been removed from the pool.)

That’s a major red flag in my book. As such I will continue my dispatches on the Dead Pool and warn traders to avoid these firms until they show they can meet the new capital requirement passed by the NFA and awaiting approval by the CFTC.

One final note, I have included Swiss brokers in the “Unregulated Firms Buyer Beware” list. I have two words for anyone considering opening an account with an unregulated Swiss broker “Tradex Swiss.” Don’t make the same mistake the poor traders at Tradex Swiss AG made and trade with an unlicensed broker that is unaccountable to anyone because should the firm get into trouble NO ONE is going to help you get your money back.
  • #469
  • Oct 29, 2007 10:29am Oct 29, 2007 10:29am
Quoting RedA
Thanks for the warning. Do you have any news about FXDD? I am not sure whether I should transfer money to other brokers now.
FXDD is not regulated and therefore will not be effected by the coming cap increase.
  • #470
  • Oct 29, 2007 10:56am Oct 29, 2007 10:56am
The last few weeks I have been enjoying the NFL season and thus my posts have not been as prolific as they were over the summer. However, it has come to my attention that the NFA has actually increased the minimum capital requirement to $10 million, NOT $5 million. Huh? Allow me to explain.

If you look at the text of this NFA Notice (http://www.nfa.futures.org/news/news...ArticleID=1973) you'll see the nfa says:

Quote
A Forex Dealer Member must have $5 million in adjusted net capital as of December 21, 2007. This increase also raises to $10 million the amount of capital required for a security deposit exemption under NFA Financial Requirements Section 12(b). Since this is a significant change to the qualifications for the exemption, Members that are currently operating under Section 12(b) should notify NFA's Compliance Department whether they intend to continue using the exemption.

What is this exemption you say? The exemption allows firms to offer customers margin of lower than 2%. In fact, the standard margin rate for customers in the forex industry is 1% with some firms like Money Garden offering margin as low as .25%.

And so the question is will these firms be able to meet the new $10 million requirement, or, will they have to change their entire business model and dramatically raise margin requirements on all their customers?
It's safe to say if they do not have the mimumn $10 million (and let's not forget there are many other capital requirements forex brokers have to meet in addition to the minimum) they will have to raise margin requirements on all their customers which will in turn result in many, if not most, of their customers to close their accounts so that they can trade somewhere else at a better margin level.

Once again, this calls into question just how stable are these firms? The NFA is turning this industry upside down. There is no way of knowing who will survive in December. Traders need to beware. These are the firms most vulnerable to these coming cap increases:

Hamilton Williams ($1,100,000)
IG Financial Markets ($1,014,000)
One World Capital ($1,170,000)
Wall Street Derivatives ($1,237,000)
SNC Investments ($1,247,000)
Advanced Markets ($1,269,000)
Direct Forex ($1,406,000)
Solid Gold Financial ($2,010,000)
CMC Markets ($2,806,000)
E FX Options ($3,055,000)
Forex Club ($3,308,000)
GFS Futures & Forex ($3,403,000)
MB Trading ($4,452,000)
Easy Forex ($4,628,000)

If you are trading with one of these brokers be sure to ask them if they are going to meet the TEN MILLION DOLLAR REQUIREMENT and if not, when will they start raising their margin requirements on their customers?
  • #471
  • Oct 29, 2007 2:23pm Oct 29, 2007 2:23pm
Quote
and if not, when will they start raising their margin requirements on their customers?

Unless you know for sure that they are in a position where they'd have to raise their margin requirements, this seems a bit like jumping the gun. I haven't checked on those firms, but its possible they already are meeting the new margin terms and telling people to ask about something they might already be doing if they don't meet a future date capitalization requirement is premature.
  • #472
  • Nov 2, 2007 12:08pm Nov 2, 2007 12:08pm
According to the most up to date CFTC Report on file for Hamilton Williams (dba Velocity4x) this firm's future is in grave doubt. Hamilton Williams only has $1,100,000 in adjusted net capital. That leaves them a scant 100 grand over the required adjusted net capital requirement. How dire is the financial situation over at Velocity? Dire enough that the NFA last spring charged Hamilton Williams with a bucketful of financial violations:

http://www.nfa.futures.org/BasicNet/...15&contrib=NFA
• C.R.2-10 - RECORDKEEPING FCMS/IBS
• F.R.SEC11(b)NEW - FDM TAKE CONCENTRATION CHARGE-UNAFFILIATED
• F.R.SEC11(a)NEW - FDM MAINTAIN ADJUSTED NET CAPITAL
• F.R.SEC12NEW - SECURITY DEPOSITS FOR FOREX TRANSACTIONS WITH FOREX DEALER MEMBERS

This is pretty serious stuff. This isn't like getting slapped with a fine for failing to put an asterisk on a marketing brochure. These allegations go right to the heart of whether or not Velocity4x is even viable as a company. Here are some statements from the NFA's Complaint:

Quote
"Hamilton failed to take the applicable concentration charge on transactions with unregulated counterparties. This failure resulted in the overstatement of Hamilton's net capital by over $275,000."

"Hamilton failed to maintain the required minimum adjusted net capital as of July 31, 2006."

"Hamilton was below its minimum adjusted net capital requirement from July 31, 2006, through September 4, 2006."

"Hamilton failed to collect and maintain the required security deposits as prescribed by NFA Financial Requirements Section 12(a)"


Wow. And these guys are going to be able to come up with $10 million two months from now? (Velocity offers 100:1 leverage which means they'll need $10 million MINIMUM to stay in business.) Where is this money going to come from? What venture capitalist is going to put his money into a company that has just been charged by the NFA with a whole host of bookkeeping violations that could get it shut down? I fear the future won't be bright enough for Hamilton Williams' execs to have to wear shades.
  • #473
  • Nov 2, 2007 12:09pm Nov 2, 2007 12:09pm
I really don't know what "security deposit exemption" meant, so I went searching:

http://www.nfa.futures.org/news/news...ArticleID=1941

This section seems relevant. Please comment anyone who is in the know:


Of the eight comments favoring the increased capital requirements, five also inquired about the effect this requirement would have on the security deposit exemption under NFA Financial Requirements Section 12(b). Financial Requirement Section 12(a) provides that an FDM must collect and maintain a minimum security deposit for each forex transaction, which is either 1% or 4% depending on the foreign currency. Financial Requirement Section 12(b) provides an exemption from this requirement for FDMs that maintain at least twice the amount of required minimum capital. The Foreign Exchange Industry Association and an FDM suggested that in light of the higher capital requirement the exemption be available to those FDMs that maintain greater than 150% of the required minimum capital. This is the same amount at which an FCM must file written notice with the CFTC pursuant to CFTC Rule 1.12(b), commonly referred to as the early warning requirement. NFA's Board, however, believes that the security deposit is an important risk-management tool and that the current levels-which allow 1:100 leverage for major currencies and 1:25 leverage for all other currencies-are not burdensome. Therefore, the Board voted to retain the current requirement that an FCM maintain twice its required capital in order to receive the security deposit exemption.

So I'm not clear if that means (without the exemption) that a 1% deposit is required... but if it does... isn't 100:1 leverage ending up @ 1% of the customers money in use as "deposit" anyway? Maybe I'm missing something here... I'm up late lol.
  • #474
  • Nov 6, 2007 4:06pm Nov 6, 2007 4:06pm
The New Cap Numbers are out! With the exception of MB Trading (now at $5,190,000) there has been no indication from the poorly capitalized firms on this list that they are shoring up their financials in preparation for the big cap increase to $5 million due in just 6 weeks. In fact one firm, Direct Forex, is reporting that they are in violation of the minimum capital requirement by $276,000!

Meanwhile, the $10 million minimum capital requirement for firms offering 100:1 leverage is proving to be a big barrier as well. How that plays out remains to be seen. But things might really get wild in the forex industry the next couple of weeks.

The following firms, according to the latest CFTC Report, do not meet the coming $5 million requirement:
http://www.cftc.gov/files/tm/fcm/fcmdata0907.pdf

Direct Forex ($762,000)
IG Financial Markets ($1,017,000)
Advanced Markets ($1,216,000)
Wall Street Derivatives ($1,231,000)
SNC Investments ($1,301,000)
One World Capital ($1,408,000)
Hamilton Williams ($1,453,000)
CMC Markets ($2,001,000)
Solid Gold Financial ($2,101,000)
GFS Futures & Forex ($3,078,000)
E FX Options ($3,752,000)
Forex Club ($3,989,000)
Easy Forex ($4,351,000)

The clock is ticking. Are your funds safe?
  • #475
  • Nov 6, 2007 4:33pm Nov 6, 2007 4:33pm
Quoting forexsavior
The New Cap Numbers are out! With the exception of MB Trading (now at $5,190,000) there has been no indication from the poorly capitalized firms on this list that they are shoring up their financials in preparation for the big cap increase to $5 million due in just 6 weeks. In fact one firm, Direct Forex, is reporting that they are in violation of the minimum capital requirement by $276,000!

Meanwhile, the $10 million minimum capital requirement for firms offering 100:1 leverage is proving to be a big barrier as well. How that plays out remains to be seen. But things might really get wild in the forex industry the next couple of weeks.

The following firms, according to the latest CFTC Report, do not meet the coming $5 million requirement:
http://www.cftc.gov/files/tm/fcm/fcmdata0907.pdf

Direct Forex ($762,000)
IG Financial Markets ($1,017,000)
Advanced Markets ($1,216,000)
Wall Street Derivatives ($1,231,000)
SNC Investments ($1,301,000)
One World Capital ($1,408,000)
Hamilton Williams ($1,453,000)
CMC Markets ($2,001,000)
Solid Gold Financial ($2,101,000)
GFS Futures & Forex ($3,078,000)
E FX Options ($3,752,000)
Forex Club ($3,989,000)
Easy Forex ($4,351,000)

The clock is ticking. Are your funds safe?
ForexSavior -

Thanks for the update...I hadn't had a chance to review what everyone else is doing lately with their financial's.

Do me a favor...could you please explain to everyone why brokers offering 100:1 leverage must come up with $10,000,000?

Regards,
  • #476
  • Nov 6, 2007 4:55pm Nov 6, 2007 4:55pm
Quoting jleblang
ForexSavior -

Thanks for the update...I hadn't had a chance to review what everyone else is doing lately with their financial's.

Do me a favor...could you please explain to everyone why brokers offering 100:1 leverage must come up with $10,000,000?

Regards,
It seems like the NFA's position is that firms offering leverage of 100:1 or more are taking on more risk and thus should have more capital set aside.
  • #477
  • Nov 6, 2007 5:01pm Nov 6, 2007 5:01pm
Quoting forexsavior
It seems like the NFA's position is that firms offering leverage of 100:1 or more are taking on more risk and thus should have more capital set aside.
So firms offer 400:1 might have to put up 40+ Mil
  • #478
  • Nov 6, 2007 5:01pm Nov 6, 2007 5:01pm
I'm with FXDD. After skimming through this all I'm back where I started...WTF am I supposed to do now? Now I'm getting a little apprehensive about staying with them. Then again, what MT4 broker should I transfer to that 'fits the bill'. Gonna drive me to drink it is...

Insert pirate "ahrrrrrrr" sound here.
  • #479
  • Nov 6, 2007 5:08pm Nov 6, 2007 5:08pm
Quoting Palmer
Gonna drive me to drink it is...
Well if you have to I hope its the Blue Label 200th Anniversary
  • #480
  • Nov 6, 2007 5:19pm Nov 6, 2007 5:19pm
So finally another great ECN firm stay in Forex!

I am very happy that MB Trading has the minimum capital.
Now... I am confused.. Do they really need the $10,000,000 for offering 1:100?

Justin is this true? Damn,, I really hope not
Trainee at UBS Investment Banking
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