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Attachments: Proposed NFA Capital Requirement
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Proposed NFA Capital Requirement

  • #841
  • Jun 12, 2008 1:24pm Jun 12, 2008 1:24pm
Quoting ycomp
I'm curious what happens when the deadline passes and a firm can't meet it? I know it's a stupid question, but will customers be able to withdraw their money?
First thing that will happen is the CFTC will step in and take the company to court charging the firm with being undercapitalized. There would most likely be an injunction against the company preventing them from touching customer assets. After that all bets are off as to when customers would get their money back.
  • #842
  • Jun 12, 2008 1:33pm Jun 12, 2008 1:33pm
Quoting forexsavior
First thing that will happen is the CFTC will step in and take the company to court charging the firm with being undercapitalized. There would most likely be an injunction against the company preventing them from touching customer assets. After that all bets are off as to when customers would get their money back.
As an example take a look at FXLQ. They are heading into their seventh month of a court ordered injunction and customers are still waiting to get their funds back.

http://www.forexfactory.com/showthread.php?t=59150
  • #843
  • Jun 13, 2008 12:55pm Jun 13, 2008 12:55pm
The receiver for FXLQ released their latest report to the court and it is chock full of eye popping revelations. http://www.robbevans.com/pdf/forexlqreport02.pdf

Revelation Number One: the Estate is short two million dollars.

Revelation Number Two: the receiver was able to further confirm that FXLQ had used a fake bond to prop up their adjusted net capital.

Revelation Number Three: FXLQ had been violating their adjusted net capital requirement as early as October of 2006.

Revelation Number Four: FXLQ paid over a quarter million dollars out to the Gray School of Irish Dance.

WTF?

Quote
Under Tab 30 is a schedule of receipts totaling $251,500 that the Gray School of Irish Dance received from FXLQ, FX ARB, Robert Gray, TMA, and Forexify between April 21, 2006 and December 24, 2007. As the source of all of these funds was FXLQ, it is perplexing why payments to the Gray School of Irish Dance were routed through other entities.


Talk about getting your priorities screwed up. Here is a company that continually cannot meet its adjusted net capital requirement sending out huge chunks of change to what appears to be a dance school in CT? http://www.grayschool.com/welcome.htm

Hey I love Riverdance as much as the next Irishman but you’d think you would make sure your books are in order before cutting cheques to the tippy toe jumping set.

The good news for customers is that the receiver is recommending customers being fully reimbursed before other creditors. This apparently includes Interbank FX who is owed a whopping $10 million. Judging from IBFX’s plummeting net capital (almost below $20 million) they sure could use the dough.

Expect the FXLQ saga to last through the summer as the receiver continues to dig through mounds and mounds of paperwork, unexplained expenses and dodgy offshore bank accounts…
  • #844
  • Jun 13, 2008 12:59pm Jun 13, 2008 12:59pm
does this mean that Gray guy goes to jail?
  • #845
  • Jun 13, 2008 1:09pm Jun 13, 2008 1:09pm
Quoting ycomp
does this mean that Gray guy goes to jail?
No, this procedure will only determine what happens with the monies. If there will be a charge or a trail is a seperate issue.
  • #846
  • Jun 13, 2008 1:11pm Jun 13, 2008 1:11pm
Quoting shrike
No, this procedure will only determine what happens with the monies. If there will be a charge or a trail is a seperate issue.
well I mean eventually... if there is fraud, isn't someone supposed to go to jail?
  • #847
  • Jun 13, 2008 1:13pm Jun 13, 2008 1:13pm
Quoting shrike
No, this procedure will only determine what happens with the monies. If there will be a charge or a trail is a seperate issue.
right. cftc, nfa can assess civil fines but they don't have the power to send anyone to the clink. In fact, so far no criminal charges have been filed. Often times forex fraud goes unpunished as it doesn't seem like there is much coordination between the feds and regulatory agencies. But this case is so egregious. I'd be surprised if Gray gets off scott free.
  • #848
  • Jun 13, 2008 1:18pm Jun 13, 2008 1:18pm
Quoting forexsavior
right. cftc, nfa can assess civil fines but they don't have the power to send anyone to the clink. In fact, so far no criminal charges have been filed. Often times forex fraud goes unpunished as it doesn't seem like there is much coordination between the feds and regulatory agencies. But this case is so egregious. I'd be surprised if Gray gets off scott free.
The Feds are spread thin on this, since W put all the focus on 'Homeland Security' white-collar crimes aren't a priority, what little manpower is left seems to do mortage-fraud only now.

http://www.bloomberg.com/apps/news?p...d=abmYcBtoJT1Q

I still hope some states-attorney or who ever puts a charge on him.
  • #849
  • Jun 13, 2008 1:29pm Jun 13, 2008 1:29pm
Quoting forexsavior
The receiver for FXLQ released their latest report to the court and it is chock full of eye popping revelations. http://www.robbevans.com/pdf/forexlqreport02.pdf

Revelation Number One: the Estate is short two million dollars.

Revelation Number Two: the receiver was able to further confirm that FXLQ had used a fake bond to prop up their adjusted net capital.

Revelation Number Three: FXLQ had been violating their adjusted net capital requirement as early as October of 2006.

Revelation Number Four: FXLQ paid over a quarter million dollars out to the Gray School of Irish Dance.
It's amazing how effective the mandated minimum net cap requirement was at preventing all this from taking place.
  • #850
  • Jun 13, 2008 2:45pm Jun 13, 2008 2:45pm
Quoting opie999
It's amazing how effective the mandated minimum net cap requirement was at preventing all this from taking place.

/sarcasm on

No no, this new net cap keeps people safe and sound. No firm that has ever been well capitalized on paper has ever hurt their clients. That's how you tell if you are with a good firm. Everyone knows that pushing competition out of the market and shutting down smaller firms can Only help the trader. Net cap is the better than regulating the actual firms. Haven't you read anything our savior has said?

/sarcasm off
The basis of a democratic state is liberty. ~ Aristotle
  • #851
  • Jun 13, 2008 3:01pm Jun 13, 2008 3:01pm
Quoting Vensik
/sarcasm on

No no, this new net cap keeps people safe and sound. No firm that has ever been well capitalized on paper has ever hurt their clients. That's how you tell if you are with a good firm. Everyone knows that pushing competition out of the market and shutting down smaller firms can Only help the trader. Net cap is the better than regulating the actual firms. Haven't you read anything our savior has said?

/sarcasm off
FXLQ was fraud, pure and simple. They were never well capitalized. The fact is there has not been a single case of a well capitalized registered forex dealer ($10 million +) going out of business in the United States. Ever.

Case Closed.
  • #852
  • Jun 13, 2008 3:22pm Jun 13, 2008 3:22pm
Quoting forexsavior
FXLQ was fraud, pure and simple. They were never well capitalized. The fact is there has not been a single case of a well capitalized registered forex dealer ($10 million +) going out of business in the United States. Ever.

Case Closed.
FXLQ reported how much to the NFA to meet their Net Cap requirement again? I believe on paper they were worth over your 10 million mark, or the NFA's 20 million for that matter.

So it wasn't until the regulators actually got off their butts and regulated the scammers that they were shut down.

Regulation: 1 Net Cap: 0

Net Capital did absolutely nothing to prevent this. Whatsoever. Actually regulating dealers stopped it in it's tracks before it got worse.

Doesn't matter if the net cap was 500k, 1million, 10million, 20million. This still would have happened. They need to regulate registered brokers, not make up magic numbers that "if you tell us you have more than this, your magically a safe place."

Brokers will have the ability to hurt their clients no matter how much they have. Regulation is what keeps that from happening. Not net cap.
The basis of a democratic state is liberty. ~ Aristotle
  • #853
  • Jun 13, 2008 3:25pm Jun 13, 2008 3:25pm
Quoting Vensik
FXLQ reported how much to the NFA to meet their Net Cap requirement again? I believe on paper they were worth over your 10 million mark, or the NFA's 20 million for that matter.

So it wasn't until the regulators actually got off their butts and regulated the scammers that they were shut down.

Regulation: 1 Net Cap: 0

Net Capital did absolutely nothing to prevent this. Whatsoever. Actually regulating dealers stopped it in it's tracks before it got worse.

Doesn't matter if the net cap was 500k, 1million, 10million, 20million. This still would have happened. They need to regulate registered brokers, not make up magic numbers that "if you tell us you have more than this, your magically a safe place."
I was not completely following this thread but I was thinking that they got "caught" because the requirements were upped... ? if the requirements were not upped, when would they have been caught?
  • #854
  • Jun 13, 2008 3:27pm Jun 13, 2008 3:27pm
Quoting ycomp
I was not completely following this thread but I was thinking that they got "caught" because the requirements were upped... ? if the requirements were not upped, when would they have been caught?
I don't remember the exact number, but they were reporting like 30+ million. That meets the cap when it was 1 million, 5 million, 10-20 million. So upping the cap didn't do it. The NFA actually stepping in and holding them accountable, ie regulating, is what got them "caught", not the magic net cap number.
The basis of a democratic state is liberty. ~ Aristotle
  • #855
  • Jun 13, 2008 3:31pm Jun 13, 2008 3:31pm
ah, I was just thinking that when the cap gets upped then each broker gets scrutinized to make sure they can truly meet it.
  • #856
  • Jun 13, 2008 4:27pm Jun 13, 2008 4:27pm
I agree that net capital WITHOUT good regulation is worthless. But net capital with good regulation is priceless.

Let's not try to pretend that FXLQ was an example of a well capitalized firm because they weren't. There were a poorly capitalized firm all along who happened to be lying through their teeth. Bottom line is that not a single well capitalized registered forex dealer has ever gone under like FXLQ did. Net capital matters a whole lot and is not to be poo poo'd.
  • #857
  • Jun 16, 2008 7:06am Jun 16, 2008 7:06am
Quoting forexsavior
FXLQ was fraud, pure and simple. They were never well capitalized. The fact is there has not been a single case of a well capitalized registered forex dealer ($10 million +) going out of business in the United States. Ever.

Case Closed.

Aint it funny that Forexsavior made sure to mention that company over $10+ were never caught for fraud, and had the balls to complain when they raised it to $20+.

Other words....Savior prefers a broker who has a net cap of between 10-20. You shady little bastard
  • #858
  • Jun 16, 2008 7:20am Jun 16, 2008 7:20am
Quoting cka6c
Aint it funny that Forexsavior made sure to mention that company over $10+ were never caught for fraud, and had the balls to complain when they raised it to $20+.

Other words....Savior prefers a broker who has a net cap of between 10-20. You shady little bastard
wasn't following the whole thread, which post was that? I was wondering why he posts threads on just about every board in the Solar System... for me that would be a full time job almost
  • #859
  • Jun 16, 2008 8:22am Jun 16, 2008 8:22am
Quoting ycomp
I was wondering why he posts threads on just about every board in the Solar System... for me that would be a full time job almost
Hmm. Ya think?!
  • #860
  • Jun 16, 2008 10:31am Jun 16, 2008 10:31am
Quoting forexsavior
2007 was a year of change in the forex industry, most of it for the better as some of the seedist firms in the industry were shown the door thanks to the NFA’s capital requirement increase. But 2008 appears to be an even more momentous year of change for the U.S. forex industry. And those changes may not necessarily be for the better.

The Savior has long been an advocate of healthy capitalization in the industry. But the recent legislation set to pass in the Congress should be a cause for serious concern for all forex traders. The last few weeks I have received numerous emails and done some research through helpful links provided on the bulletin boards and have come to the realization that this legislation is not good for the trading public.

Wha? I know, I know. The Savior has been preaching the virtues of high capitalization so in theory he should support increasing capitalization to $20 million right? And in fact at first I was sympathetic to this proposal. But the bottom line is the Savior is also a trader. And as a trader I am worried that by restricting this industry to just a handful of the larger players (FXCM, GFT, Gain, Oanda) that speads will once again widen. Take FXCM for example. Their spreads have been tightening for the past year in response to the increased competition taking place in the marketplace. But what happens if that competition gets eliminated altogether? How does this affect the average trader?

The $5 million rule needed to be put into place. There were too many tiny bucketshops doing serious damage to traders. Even now I still have my suspicions about tiny little outfits like AMIFX who are barely treading water even after the $5 million requirement.

Nevertheless, with the House already passing a law to require that all firms have a minimum $20 million on hand (and who knows what other capital requirements will be imposed upon the industry) the barrier to entry is getting sky high and few firms are going to be able to make the cut. My understanding is that the Senate has not approved the House’s language. So there may still be a chance to stop this law from passing.

Also it appears that introducing brokers are going to be wiped out entirely. There are a bunch of registration requirements that may very well strangle most introducing brokers and put them out of business.

I don’t think people realize just how perilous the situation is. This could all become law in a month’s time. Traders, brokers and medium sized dealers should call their Congressman right away. It seems Congress is only hearing from the regulators, not the general public. As a trader I want a healthy industry with stable, well capitalized firms. But I also want good service and tight spreads. Having only 6 firms in the industry is not going to guarantee either.
Here is the post where he is against the 20 million increase.
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