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CFTC Comment Period on Additional Customer Protections

  • #41
  • Sep 8, 2012 2:43pm Sep 8, 2012 2:43pm
Quoting PoundTrader
please, untill we get laws in place to deal with forex customer fund protection i dont wanna hear it

I agree. Regulators have lost more than $1 billion of customer funds, and that money was segregated, or legally protected. Forex traders monies would pay the FDMs creditors if any of these FDMs go belly up. In other words, most likely we won't get anything back - and there is nothing we can do about it. That is the law of the land. Be ready to pay a lot of money to an attorney if you want to fight it. If you get the money back, guess what? most of it goes to the lawyer.

It is not their money they lost, because if it was, they would ensure that no one would go through that, or at the very least ensure that everyone had the same protections. Funny enough, they are working really hard trying to finish swap rules, cleaning up Clinton's mess... these wealthy swap participants margins are segreated. That made it through the bankruptcy code, while the retail clients, who needs these protections the most, are overlooked.

SMH -
  • #42
  • Edited Sep 11, 2012 8:12am Sep 10, 2012 2:16pm | Edited Sep 11, 2012 8:12am
Last week the Trustee of PFG's estate announced a series of limited distributions to customers of the bankrupt firm. Of interest to retail forex traders is that the estate is not making any current distributions to PFG customers who were trading off-exchange forex:

http://www.omnimgt.com/CMSVol/CMSDoc...333616_147.pdf


Quote
“The Forex Customers and the Metals Customers, however, do not hold claims against the Debtor on account of "commodity contracts" and therefore, are not "customers" under § 761(9) of the Bankruptcy Code and the Part 190 Rules. Accordingly, in accordance with subchapter IV and the Part 190 Rules, the distributions requested under the Motion, discussed below, will apply solely to the Futures Customers. Forex Customers and Metals Customers will not be included in such distributions and their claims will be addressed separately as part of the case.


The way the law is written the trustee is justified in putting futures customers first. This is why it has become urgent that regulators take additional steps to bring transparecy to the futures/forex industry so that customers can have a look at their broker's finances in order to weigh the risks invovled before putting funds on deposit with them. Since the law is not designed to currently protect forex investors, then traders need to protect themselves. This starts with granting traders the ability to conduct greater due diligence. If regulators can mandate that brokers disclose profitability ratios surely they can also mandate greater financial disclosure.

CFTC to announce initial recommendations this week. Contact [email protected] with your thoughts.
  • #43
  • Sep 10, 2012 2:25pm Sep 10, 2012 2:25pm
It sounds like that a firm that offers futures as well as spot FX is an especially bad choice, from a FX traders POV - since FX clients would always get the short end of the stick. A pure fx firm would be better in this case, where at least all clients get the same piece of the cake (as small as it may be).
  • #44
  • Sep 11, 2012 12:04am Sep 11, 2012 12:04am
Quoting shrike
It sounds like that a firm that offers futures as well as spot FX is an especially bad choice, from a FX traders POV - since FX clients would always get the short end of the stick. A pure fx firm would be better in this case, where at least all clients get the same piece of the cake (as small as it may be).
In a sense you are right. But seeing how the firm is able to handle previous/additional obligations would usually be a positive thing from either a trader or a stockholder's point of view.
Measure trends automatically with zero lag
  • #45
  • Sep 11, 2012 1:03am Sep 11, 2012 1:03am
Quoting FCM-Reform
Last week the Trustee of PFG's estate announced a series of limited distributions to customers of the bankrupt firm. Of interest to retail forex traders is that the estate is not making any current distributions to PFG customers who were trading off-exchange forex:

http://www.omnimgt.com/CMSVol/CMSDoc...333616_147.pdf




[color=#1f497d][font=Times New Roman][font=Verdana][size=2][color=black]The way...

Discolosing more ratio's ok but how this would protect in case like PFG where we had accounts listing foregery? Regulators should be able to make independent audit over bank accounts & how customers money is secured.

Good luck for regulations. Already fewer US brokers & FX like by magic escaping US for shady regulations.

13
Brokers are angels
  • #46
  • Sep 11, 2012 1:20am Sep 11, 2012 1:20am
Quoting ybfjax
In a sense you are right. But seeing how the firm is able to handle previous/additional obligations would usually be a positive thing from either a trader or a stockholder's point of view.
what
  • #47
  • Edited Sep 12, 2012 5:24am Sep 11, 2012 6:52pm | Edited Sep 12, 2012 5:24am
Quoting FCM-Reform
Last week the Trustee of PFG's estate announced a series of limited distributions to customers of the bankrupt firm. Of interest to retail forex traders is that the estate is not making any current distributions to PFG customers who were trading off-exchange forex:

http://www.omnimgt.com/CMSVol/CMSDoc...333616_147.pdf




[color=#1f497d][font=Times New Roman][font=Verdana][color=black]The way the law is written the trustee is justified in putting futures customers first. This is why it has become urgent that regulators...
[size=2]It sounds to me like FX traders are just dealt with last, but I wonder if a firm is a futures and Fx dealer how do they distinguish the difference between the two (if there are no open positions)?

If you read further down in that document you posted it says pg5 #12.:

Forex and Metals customers will not be included in such distributions and their claims will be addressed seperately as part of the Case.

No one but the inept CFTC will know what that means. lol.
  • #48
  • Sep 12, 2012 1:27am Sep 12, 2012 1:27am
Quoting shrike
what
If a broker has multiple products to offer their clients, especially under other regulated entities, along with a history for each of its product offerings, then a trader or a stockholder is much more likely to appreciate the additional history.

If there is only 1 product offering from a company (retail forex in this example), then the company would have to work extra hard to ensure that it wins over client trust.

MBTrading is a good example of using prior product offerings (stocks, futures) to strengthen its retail forex offering. I know, I know, so was PFG to a lesser extent, but it is still more difficult to bluff multiple legit product offerings vs 1 legit offering.

If a forex-only broker goes bust, it would be tough luck to all traders still, as who knows how far down the chain the trader is placed in bankruptcy consideration.
Measure trends automatically with zero lag
  • #49
  • Sep 12, 2012 1:42pm Sep 12, 2012 1:42pm
Quoting pip_seeker
[size=2]It sounds to me like FX traders are just dealt with last, but I wonder if a firm is a futures and Fx dealer how do they distinguish the difference between the two (if there are no open positions)?

If you read further down in that document you posted it says pg5 #12.:

Forex and Metals customers will not be included in such distributions and their claims will be addressed seperately as part of the Case.

No one but the inept CFTC will know what that means. lol.
I fear that "seperately" will mean "last." CFTC is trying to slow down the distribution process. But to date they have not commented on the state of the forex customers at PFG.
  • #50
  • Sep 14, 2012 12:40pm Sep 14, 2012 12:40pm
As regulators continue to investigate PFG news is coming out showing that the futures firm had been losing money for years:

http://www.valuewalk.com/2012/09/pfgbest-in-more-trouble-as-liabilities-outweigh-assets/

QUOTE:
"Its financial statement submitted to the court, indicated that the business has been going down since 2010. The company suffered $2.7 million in gross income losses in 2010, $1.2 million in losses in 2011, and $259,000 losses during the six month period of the current fiscal year."

PFG had recorded three straight years of losses. And yet they had just moved into an $18 million glass and steel office complex in Iowa boasting some of the most luxurious office amenities imaginable. But because PFG never had to disclose their losses they were able to give customers the impression that the firm was healthy and growing, when in fact it was sick and contracting. Customers should be aware of this before they open an account. Particularly since there is no insurance for futures or forex.

The CFTC postponed their vote on additional customer protections this week giving traders a little more time to comment.
  • #51
  • Sep 14, 2012 11:58pm Sep 14, 2012 11:58pm
Quoting FCM-Reform
The CFTC postponed their vote on additional customer protections this week giving traders a little more time to comment.
The email comments, or did they open the official comments board?
Measure trends automatically with zero lag
  • #52
  • Edited 5:11pm Sep 15, 2012 4:44pm | Edited 5:11pm
Quoting pip_seeker
[size=2]It sounds to me like FX traders are just dealt with last
The CFTC protects client funds by requiring the FCMs to place seperately customer funds, in a legally defined account called seg account. By legally protecting the money the CFTC does not allow the firm to use customer funds for its operations. If an FCM fails to do that, and used client funds in a manner that is not prescribed by law, he/she would be in serious violation of CFTC Regulations.

The CFTC has not extended that protection to the retail forex traders. Which means that in case of a brankruptcy, Futures segregated accounts are protected in such precedings, and they get paid first. Then, creditors of the firm/estate start fighting for the remaining assets. In case of PFG, the CEO stoled $200m, which means that Forex traders, $30m or so of customer funds, can be misappropiated to pay someone or something else because it did not received the legal protection it deserves. If the money was required to be segregated by law, then that money would be paid first along future clients, which is the most common sense fair deal when one of these brokers go bankrupt. Customers should be paid first.
  • #53
  • Sep 16, 2012 3:54pm Sep 16, 2012 3:54pm
Quoting Dick Clark
The CFTC protects client funds by requiring the FCMs to place seperately customer funds, in a legally defined account called seg account. By legally protecting the money the CFTC does not allow the firm to use customer funds for its operations. If an FCM fails to do that, and used client funds in a manner that is not prescribed by law, he/she would be in serious violation of CFTC Regulations.
Really? So you better tell them about a certain Mr Corzine that did it and so far nothing happens.

What about PFG that got away with it for almost a decade?

Regulators are there to make sure the small fish don't compete with the big ones.

A bunch of laws don't mean anything if there is no enforcement.
So, you think you have rights? LOL
  • #54
  • Sep 17, 2012 9:06am Sep 17, 2012 9:06am
Quoting ybfjax
The email comments, or did they open the official comments board?
The CFTC closed their comment thread. However, you can still send them comments by emailing [email protected]
  • #55
  • Sep 18, 2012 9:29am Sep 18, 2012 9:29am
The National Futures Association has added some additional public financial information on their BASIC search function effective September 1:

http://www.nfa.futures.org/news/news...ArticleID=4109

Quote
At its August meeting, NFA's Board of Directors determined that certain FCM financial data should be made publicly available on NFA's website to assist customers in their due diligence review of an FCM.

The Board determined that the best way to display this information is on an FCM-by-FCM basis through NFA's BASIC system. Therefore, NFA is adding new sections to each FCM's BASIC page to disclose certain financial related information. Specifically, from each FCM's BASIC page, the public will be able to access three separate FCM Reports - FCM Capital Report; FCM Customer Segregated Funds Report; and FCM Customer Secured Funds Report. Below is a description of the information that will appear in each report.

These actions are a step in the right direction. Clearly, regulators believe that public disclosure of FCM financial accounts are beneficial to customers as they conduct their due diligence. It therefore follows that additional financial disclosures (complete disclosure of a FCM's balance sheet for example) would empower traders to an even greater degree.
  • #56
  • Sep 20, 2012 4:54pm Sep 20, 2012 4:54pm
The federal bankruptcy judge in the PFG case authorized a series of initial customer distributions today. http://www.foxbusiness.com/industrie...et-money-back/


Quote
The first wave of payouts will happen by October 8 and a second wave will occur before October 29, Fishman said.


The Commodity Futures Trading Commission initially raised concerns about the trustee's plan because of uncertainty about the integrity of Peregrine's books. The commission warned that some people could get money they were not entitled to without proper vetting of records.

The fate of PFG's retail forex customers remains in doubt. The CFTC has yet to announce their proposed reforms. Retail forex needs to be a part of these reforms. We're still encouraging traders to contact CFTC at [email protected] to voice their concern.
  • #57
  • Sep 25, 2012 8:34am Sep 25, 2012 8:34am
Reuters has just published an exhaustive two part special report on the fraud perpetrated by Russ Wassendorf. Wassendorf spent tens of millions of dollars on luxury items and in failed business ventures with money stolen from client accounts.

Part One: http://in.reuters.com/article/2012/0...88N0EJ20120924

Part Two: http://in.reuters.com/article/2012/0...88O0HF20120925

One of the most distressing aspects of the fraud is that Wassendorf was nearly caught last year in a routine audit but managed to head off the NFA with a last second fax that allowed him to keep the fraud going for another year. The episode highlights the need for greater auditing and accounting standards, not to mention the need for more financial disclosures for brokers so as to prevent lone wolf CEO's like Wassendorf from hiding the true state of their firm's finances.
  • #58
  • Sep 28, 2012 10:23am Sep 28, 2012 10:23am
The CFTC has released a transcript from the public roundtable that was held in August.

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/transcript080912.pdf

While retail forex is absent from the discussion the issues pertaining to FCM’s is of importance to retail forex customers since FCM’s like PFG routinely offer retail forex as part of their suite of products.

One of the arguments against additional financial disclosures for FCM’s is that these disclosures may weaken the fragile, financial health of less profitable FCM’s. Warren Davis of Sutherland, Asbill & Brennan made the following point in response:

"In the case of a FCM, the money that the customer gives the FCM is not for the use of the FCM. It's solely to protect the customer, so it seems to me that the run on the bank analogy is not altogether appropriate here. But what is appropriate is to ensure that customer money is, in fact, used for the only purpose for which it's given which is to secure the customer's obligations to the FCM and the clearinghouse. And therefore, if information is released which causes a customer to move its account from one FCM to another, that shouldn't be viewed as a bad thing. That's sort of the way the futures world is supposed to work."

Unfortunately, that is not currently the way the futures world works. Because FCM’s are able to keep their financials hidden from the public there is no way of truly knowing if the firm traders are doing business with is healthy or unhealthy. The net result is that traders are left to play a guessing game about whether their funds are safe or not.

CFTC has yet to announce when they will unveil their reform proposals.
  • #59
  • Oct 2, 2012 9:21am Oct 2, 2012 9:21am
The PFG bankruptcy proceedings are turning into a tragedy for PFG's retail forex customers who may now be forced to stand by and watch their funds be used to reimburse customers who traded on-exchange futures with PFG. In response, a group of traders have started a website to try and rally support amongst PFG's forex customers: http://www.pfgforexmetalslegalaccount.com/index.html

The Traders who have setup "Forex Metals Account LLC" have also sent out an email to PFG's forex customers updating them on the bankruptcy proceedings: http://www.forexfactory.com/showthre...10#post6059110

Quote
Our Forex and Metals monies are currently intact at JPMorgan Chase Bank and Royal Bank of Scotland as confirmed by the Trustee. You may think that because our accounts are listed in the Trustee’s documents that our accounts are safe. Initially we believed this as well. In fact, if you carefully read thru all the Motions, schedules and documents submitted to the bankruptcy court, nothing could be farther from the truth. Our accounts are at risk of being completely emptied in the current legal proceedings - effectively stealing our money in the next few weeks - and converted to pay Futures account holders and the Trustee’s law firm. We view what may be about to take place as equivalent to criminal theft/larceny. We never in our wildest dreams thought that one man or a group of lawyers could put 100 percent of our accounts at risk, do it openly, publicly, and legally get away with it. The Trustee’s Motions are designed to distribute $123 million to Futures account holders – which was approved in court on 9/20/12 – and will deplete the funds available to Forex and Metals account holders. We need to immediately protect our accounts. If we let the Trustee and the dozens of lawyers representing non-Forex and non-Metals clients take our money without doing anything about it, then we don’t have anyone else to blame but ourselves. We cannot sit idly by and watch our hard earned money be divided between creditors and other customers.

FXCM has been lobbying Congress since 2005 to include retail forex in any bankrupcy prodeeding but we have not had much success due to the hesitancy of Washington to re-open the bankruptcy code on behalf of retail forex customers. In the meantime, the PFG bankruptcy should give retail forex traders pause in regards to opening a retail forex account with a Futures Commission Merchant instead of a Retail Forex Exchange Dealer due to the disparity in treatment the two class of customers are getting in this bankruptcy.

We are also still encouraging traders to contact CFTC at [email protected] to urge greater protections for retail forex traders.
  • #60
  • Oct 2, 2012 10:59am Oct 2, 2012 10:59am
so the regulators ROB PETER TO PAY PAUL, like i said before they want to protect the future industry and make spot forex traders trade currency futures
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