All the NFA has to do is prevent a company from going into bankruptcy and demand they distribute the funds first. That is what they did with Sentinel. That is what they could do for all Forex Firms.
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Proposed NFA Capital Requirement
- Thread starter forexsavior
- Start date
All the NFA has to do is prevent a company from going into bankruptcy and demand they distribute the funds first. That is what they did with Sentinel. That is what they could do for all Forex Firms.
Large Firms Prepare for Cap Increase
Two of the biggest FX Brokers are preparing for the coming increase in capital requirements by loading up their balance sheets.
First, Oanda has landed $100 million in funding:
http://www.americanventuremagazine.com/news.php?newsid=3474
Meanwhile, FXCM has released its own balance sheet to the general public:
http://www.fxstreet.com/forum/showthread.php?p=6933#post6933
FXCM also commented on the proposed increase in capital requirements and stated:
So what are the smaller firms waiting for? Why haven't we been hearing these kinds of reassuring statements from the poorly capitalized firms under $5 million? Are they going to be able to meet the coming $5 million capital requirement due in just two months? Why aren't these firms releasing their own balance sheets? Many of the firms under $5 million claim to have additional resources they are not reporting. So why don't they tell us about these "unreported assets." The silence from the sub-$5 million fx brokers is deafening. And it should be a warning sign for traders to beware doing business with them until it becomes clear that they actually have a future.
Two of the biggest FX Brokers are preparing for the coming increase in capital requirements by loading up their balance sheets.
First, Oanda has landed $100 million in funding:
http://www.americanventuremagazine.com/news.php?newsid=3474
Online currencies information and trading system Oanda Corp has received a $100 million investment from a consortium of firms, the company announced Monday. The consortium is led by New Enterprise Associates and includes Legg Mason (LM), Cascade Investment LLC and T. Rowe Price Group Inc. (TROW). The proportion that each firm is contributing to the investment wasn't disclosed.
Michael Stumm, co-founder of Oanda, told Dow Jones Newswires that the investment wasn't aimed at financing any particular projects. "It's primarily to beef up our balance sheet," he said. "We're a market maker and we're in the financial services industry so the balance sheet plays an important role."
Meanwhile, FXCM has released its own balance sheet to the general public:
http://www.fxstreet.com/forum/showthread.php?p=6933#post6933
Balance Sheet (Unaudited)
AS OF AUGUST 31, 2007
CUSTOMER CASH 296,474,636
OPERATING CASH 96,311,380
OTHER ASSETS 19,666,212
FIXED ASSETS 9,821,211
TOTAL ASSETS 422,273,439
CUSTOMER DEPOSITS 296,474,636
OTHER LIABILITIES 5,662,597
TOTAL LIABILITIES 302,137,233
FXCM CAPITAL 120,136,206
TOTAL LIABILITIES AND FXCM CAPITAL 422,273,439
Drew Niv, CEO of the trading firm, commented: âFXCM is proud of our continued financial discipline and strong balance sheet. We believe clients should have the necessary information to make intelligent choices.â
FXCM also commented on the proposed increase in capital requirements and stated:
Although this new $5 million capital requirement has yet to take affect, NFAâs president and Chief Executive Officer has already testified before congress that capital levels for Forex Dealer Members should be raised to $20 million.
Forex Capital Markets, LLC, an NFA member firm, is the US regulated entity of the FXCM Group. As of August 31, 2007 Forex Capital Markets, LLC had an adjusted net capital of $60,268,390.
According to Niv, âThe financial resources for FXCM (Forex Capital Markets, LLC) far exceed both the recently announced increased $5 million capital requirement level as well as the $20 million capital level proposed by NFAâs president and CEO in his recent congressional testimony.â
So what are the smaller firms waiting for? Why haven't we been hearing these kinds of reassuring statements from the poorly capitalized firms under $5 million? Are they going to be able to meet the coming $5 million capital requirement due in just two months? Why aren't these firms releasing their own balance sheets? Many of the firms under $5 million claim to have additional resources they are not reporting. So why don't they tell us about these "unreported assets." The silence from the sub-$5 million fx brokers is deafening. And it should be a warning sign for traders to beware doing business with them until it becomes clear that they actually have a future.
Quote from forexsavior:
Meanwhile, FXCM has released its own balance sheet to the general public:
http://www.fxstreet.com/forum/showthread.php?p=6933#post6933
There is a link to that on FXCM's home page as well.
While FXCM should be commended for disclosing those numbers in this day and age - although described as Unaudited and, strangely, as of January 31 - there is one interesting bit of data that their powerful, pervasive PR machine will probably not draw our attention to: average account size.
Customer deposits = $257,529,075
"Over 90,000 live accounts"
---> Average account size < $2,861
That means that there must be tens of thousands of FXCM accounts with balances even less than that impressive figure.
Both ODL and IFX have US entities that I do not see going away. IFX Markets Inc, used to be Commerce Bank Foreign Exchange (cbfx) seperate from IFX Markets Ltd in the UK, who is the parent company. IFX was taken over by City Index which is owned by the Intercapital Private Group, (Michael Spencer, ICAP, EBS), so I think that they are going to be fine. ODL is another large company out of the UK with a stake in the US market and I for one do not see any of these companies going anywhere, along with CMC.
Updated CFTC Cap Numbers
The new capital numbers are out. Here is the most comprehensive list available of the industry's financial status. I have included every single registered Forex Dealer Member and listed their Adjusted Net Capital. Since I first started posting about the NFA proposal over a dozen firms have gone out of business. Two others have merged and several others are staring death in the face. Here is the direct link for the CFTC capital reports: http://www.cftc.gov/marketreports/financialdataforfcms/
Firms Under $5 Million
All these smaller firms are reporting adjusted net capital below the $5 million mark as of the latest CFTC report. Some should be able to raise the necessary capital. Others clearly will not. Which ones can and cannot will be anybody's guess. Already one of these firms, One World Capital, is not allowing customers to withdraw money.
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)
Firms Under $20 Million
These medium sized firms all meet the coming minimum adjusted net capital requirement. However, there are other capital requirements that as market makers these firms will need to meet in addition to the minimum $5 million. Most firms will likely need $10 million to be in compliance with the NFA's rules. Clearly firms like Money Garden are not in the clear just yet.
Money Garden ($5,505,000)
HotSpot FX ($6,023,000)
I Trade FX LLC ($6,645,000)
IKon ($6,736,000)
IFX Markets ($9,078,000)
CMS Forex ($11,255,000)
ODL Securities ($12,642,000)
PFG Forex ($14,742,000)
Firms Over $20 Million
These are the most well capitalized firms in the industry and two years from now may very well be the only firms left in the industry if Dan Roth and the NFA have their way and increase cap requirements to $20 million.
FX Solutions ($23,062,000)
Interbank FX ($27,110,000)
Gain Capital (36,679,000)
Forex Liquidity ($38,317,000)
GFT Forex ($48,302,000)
FXCM ($60,268,000)
Oanda ($156,467,000)
Firms No Longer in Business
These are the firms that have gone out of business since I began posting on the forum. That's a quarter of the industry in just a few months. And one of those firms, Nations LLC, has gone into bankruptcy and customers can't get their money back- and may never get their money back.
Bacera Corporation
Cal Financial Corporation
FiniFX
Forward Forex
FX Option1 Inc.
Nations Investments
Performance Capital International
Spencer Financial
Tradex Swiss AG
Trend Commodities
United Global Markets
Worldwide Clearing
Firms that Merged
These are the firms that could not make the new capital requirement on their own and decided to merge with larger players as a result.
American National Trading Corp (Merged with PFG)
Royal Forex Trading (Merging with IKON)
Summary
It is a very turbulent time in the forex industry. My advice is what it has always been, do not trade with a poorly capitalized firm. And if you must, at least wait until after the December 17, 2007, deadline before putting any money on deposit with any firm that is not meeting the current minimum capital requirement.
The new capital numbers are out. Here is the most comprehensive list available of the industry's financial status. I have included every single registered Forex Dealer Member and listed their Adjusted Net Capital. Since I first started posting about the NFA proposal over a dozen firms have gone out of business. Two others have merged and several others are staring death in the face. Here is the direct link for the CFTC capital reports: http://www.cftc.gov/marketreports/financialdataforfcms/
Firms Under $5 Million
All these smaller firms are reporting adjusted net capital below the $5 million mark as of the latest CFTC report. Some should be able to raise the necessary capital. Others clearly will not. Which ones can and cannot will be anybody's guess. Already one of these firms, One World Capital, is not allowing customers to withdraw money.
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)
Firms Under $20 Million
These medium sized firms all meet the coming minimum adjusted net capital requirement. However, there are other capital requirements that as market makers these firms will need to meet in addition to the minimum $5 million. Most firms will likely need $10 million to be in compliance with the NFA's rules. Clearly firms like Money Garden are not in the clear just yet.
Money Garden ($5,505,000)
HotSpot FX ($6,023,000)
I Trade FX LLC ($6,645,000)
IKon ($6,736,000)
IFX Markets ($9,078,000)
CMS Forex ($11,255,000)
ODL Securities ($12,642,000)
PFG Forex ($14,742,000)
Firms Over $20 Million
These are the most well capitalized firms in the industry and two years from now may very well be the only firms left in the industry if Dan Roth and the NFA have their way and increase cap requirements to $20 million.
FX Solutions ($23,062,000)
Interbank FX ($27,110,000)
Gain Capital (36,679,000)
Forex Liquidity ($38,317,000)
GFT Forex ($48,302,000)
FXCM ($60,268,000)
Oanda ($156,467,000)
Firms No Longer in Business
These are the firms that have gone out of business since I began posting on the forum. That's a quarter of the industry in just a few months. And one of those firms, Nations LLC, has gone into bankruptcy and customers can't get their money back- and may never get their money back.
Bacera Corporation
Cal Financial Corporation
FiniFX
Forward Forex
FX Option1 Inc.
Nations Investments
Performance Capital International
Spencer Financial
Tradex Swiss AG
Trend Commodities
United Global Markets
Worldwide Clearing
Firms that Merged
These are the firms that could not make the new capital requirement on their own and decided to merge with larger players as a result.
American National Trading Corp (Merged with PFG)
Royal Forex Trading (Merging with IKON)
Summary
It is a very turbulent time in the forex industry. My advice is what it has always been, do not trade with a poorly capitalized firm. And if you must, at least wait until after the December 17, 2007, deadline before putting any money on deposit with any firm that is not meeting the current minimum capital requirement.
Quote from forexsavior:
All the NFA has to do is prevent a company from going into bankruptcy and demand they distribute the funds first. That is what they did with Sentinel. That is what they could do for all Forex Firms.
In that case the segregation will only work well as long as the NFA can anticipate bankruptcy. This may be the case for firms slowly deteriorating, certain events however can not be foreseen. For example a major scandal like Refco would leave 'segregated' funds at risk. Segregation should only be mandated when it's 100% proof (i.e. has a legal basis), otherwise it would just be misleading.
About the $20 mil minimum capital requirement, I think from now on it's just a matter of driving competition out of business. FXCM can only dream of a market with 6 competitors and no real risk of entry by others.
Don't forget that new firms drive innovation. I don't think Oanda could have set up in case they would have had to put up 20m US minimum. The current 5m US minimum and higher requirements based on customer funds / risk has to be preferred.
Regulation is a perfect way to stifle competition, don't forget that when supporting even higher minimum capital requirements.
Update on Tradex Swiss AG Misery
The Boston Business Journal ran another article on the shenanigans going on over at Tradex Swiss Ag:
http://boston.bizjournals.com/boston/stories/2007/10/08/story3.html
Like most Swiss firms Tradex Swiss AG is not regulated and customers have been burned as a result. Please note the following Swiss firms ARE NOT REGULATED and should be avoided lest you end up like the poor sods at Tradex Swiss AG:
ACM
Dukascopy
WestCapFX
MIG
GFX Group (Forex.CH)
Crown Forex
Immigrants trapped in forex mess
by Jackie Noblett Journal staff
Z. Song was amazed by the size of her friend's new house.
The Westford resident asked her friend, who never had a full-time job, how she and her husband were able to buy their new home in Acton. The friend said her husband invested money with Tradex Swiss AG, a Boston money manager that specialized in foreign exchange trading. Song recalls being told she should trade, too.
"They would never lose money, always make big money," Song said in an interview.
Little did Song know that her friend's husband, David Qi, was getting paid, according to his lawyer, to refer friends to the unregistered forex trading company. Song also maintains she had no idea that, just three months after her initial investment, her money would be locked up in a legal battle involving Tradex and its regulators. Tradex is now being investigated by governments on both sides of the Atlantic for trading currency without being properly registered, and over $4 million in investment accounts hangs in the balance.
The rest of the article requires a subscription but essentially contains tales of misery and woe from traders whose funds are frozen in the shuttered swiss brokerage. Of interest in this sordid tale are the actions of Tradex salesmen who were STILL soliciting customers to trade even as Tradex was going under!
So basically Tradex was encouraging traders to purchase tickets on the Titanic right after it had struck an iceberg. Talk about a complete lack of ethics.
This is a very important point to remember. Small forex brokers that are in financial trouble rarely let customers know they are in trouble ahead of time. Indeed, as Tradex shows, they will go so far as to cover up that trouble to their own customers and encourage them to keep sending in money even when all is lost.
This is why traders should never invest money with a poorly capitalized/unregulated firm. These firms can unwind rapidly and by the time the average trader finds out it is way too late to do anything about it.
The Boston Business Journal ran another article on the shenanigans going on over at Tradex Swiss Ag:
http://boston.bizjournals.com/boston/stories/2007/10/08/story3.html
Like most Swiss firms Tradex Swiss AG is not regulated and customers have been burned as a result. Please note the following Swiss firms ARE NOT REGULATED and should be avoided lest you end up like the poor sods at Tradex Swiss AG:
ACM
Dukascopy
WestCapFX
MIG
GFX Group (Forex.CH)
Crown Forex
Immigrants trapped in forex mess
by Jackie Noblett Journal staff
Z. Song was amazed by the size of her friend's new house.
The Westford resident asked her friend, who never had a full-time job, how she and her husband were able to buy their new home in Acton. The friend said her husband invested money with Tradex Swiss AG, a Boston money manager that specialized in foreign exchange trading. Song recalls being told she should trade, too.
"They would never lose money, always make big money," Song said in an interview.
Little did Song know that her friend's husband, David Qi, was getting paid, according to his lawyer, to refer friends to the unregistered forex trading company. Song also maintains she had no idea that, just three months after her initial investment, her money would be locked up in a legal battle involving Tradex and its regulators. Tradex is now being investigated by governments on both sides of the Atlantic for trading currency without being properly registered, and over $4 million in investment accounts hangs in the balance.
The rest of the article requires a subscription but essentially contains tales of misery and woe from traders whose funds are frozen in the shuttered swiss brokerage. Of interest in this sordid tale are the actions of Tradex salesmen who were STILL soliciting customers to trade even as Tradex was going under!
In the midst of the investigation, email communications provided to the Boston Business Journal by former Tradex investors show that company continued to solicit business from customers.
A July 25 e-mail from a Tradex broker said that the operation had opened an account at Sovereign Bank for future trading. "In the future, please wire your fund to this account," the e-mail states.
So basically Tradex was encouraging traders to purchase tickets on the Titanic right after it had struck an iceberg. Talk about a complete lack of ethics.
This is a very important point to remember. Small forex brokers that are in financial trouble rarely let customers know they are in trouble ahead of time. Indeed, as Tradex shows, they will go so far as to cover up that trouble to their own customers and encourage them to keep sending in money even when all is lost.
This is why traders should never invest money with a poorly capitalized/unregulated firm. These firms can unwind rapidly and by the time the average trader finds out it is way too late to do anything about it.
NFA Accuses Royal Forex Trading of Fraud
Well the folks over at IKon can't be too happy with the news that the NFA has filed suit against RFXT and accused them of fraud in a new complaint:
http://www.nfa.futures.org/BasicNet/Case.aspx?entityid=0370971&case=07BCC00028&contrib=NFA
IKon recently merged with former Dead Pool Member Royal Forex Trading and on RFXT's website they are listed as being a "division of IKon Global Markets."
So how does IKon feel about a division of its company being charged with the following:
"CHEAT, DEFRAUD, DECEIVE FOREX CUSTOMERS"
The NFA summarizes their complaint as follows:
Perhaps the most illuminating aspect of the NFA Complaint against RFXT is this doozy about how Royal Forex clears its trades. NFA cites an IB that RFXT uses and in the process reveals how RFXT clears its trades:
Lol! This is another downside of trading with poorly capitalized firms. Firms like RFXT do not have the kind of trade volume needed to get access to the best prices in the interbank market (although that doesn't stop these same firms from exagerrating their access to "interbank pricing.")
As it stands Royal Forex trading is clearing its trades through IFX? How on earth are you going to get good pricing trading with RFXT when they have to go cup in hand to one of their competitors to get their quotes? Why can't RFXT get a line of credit with a bank like the larger players get? The fact that they can't should send up red flags that these firms are far riskier to trade with than the more well established players.
The more you learn about how smaller forex firms operate (the fraud, the insolvency, the lousy pricing) the more traders should thank their lucky stars the NFA has raised capital requirements to $5 million because this industry is badly in need on an enema.
Well the folks over at IKon can't be too happy with the news that the NFA has filed suit against RFXT and accused them of fraud in a new complaint:
http://www.nfa.futures.org/BasicNet/Case.aspx?entityid=0370971&case=07BCC00028&contrib=NFA
IKon recently merged with former Dead Pool Member Royal Forex Trading and on RFXT's website they are listed as being a "division of IKon Global Markets."
So how does IKon feel about a division of its company being charged with the following:
"CHEAT, DEFRAUD, DECEIVE FOREX CUSTOMERS"
The NFA summarizes their complaint as follows:
On September 14, 2007, NFA issued a Complaint charging Royal with using misleading and fraudulent promotional material; failing to uphold high standards of commercial honor and just and equitable principles of trade; and failure to collect and maintain the required security deposit. The Complaint also charged Royal and Marsch with failure to supervise.
Perhaps the most illuminating aspect of the NFA Complaint against RFXT is this doozy about how Royal Forex clears its trades. NFA cites an IB that RFXT uses and in the process reveals how RFXT clears its trades:
InterBank Group's website also contained statements that falsely implied that customers would be trading in the interbank market. For example, the website included such claims as, "InterBank Group clients routinely benefit from the size and strength of one of the world's largest online foreign exchange providers," and "with access to over $1 billion in liquidity from the world's top FX banks, InterBank Group is able to pass along bank level pricing to our clients through our clearing firms."
In reality, customers hardly enjoy "bank level pricing" as InterBank Group widens the spreads from the prices that it receives from Royal by as much as 39 pips. Further, Royal offsets its forex exposure with IFX Markets, Inc., an NFA Member FDM, which in turn offsets its exposure with IFX Markets, Ltd. Thus, it was misleading for InterBank Group to suggest that its customers receive the same prices that banks and other institutions do, as the spread InterBank Group charges its customers is widened from the spread on prices that IFX Ltd. receives from its counterparties.
Lol! This is another downside of trading with poorly capitalized firms. Firms like RFXT do not have the kind of trade volume needed to get access to the best prices in the interbank market (although that doesn't stop these same firms from exagerrating their access to "interbank pricing.")
As it stands Royal Forex trading is clearing its trades through IFX? How on earth are you going to get good pricing trading with RFXT when they have to go cup in hand to one of their competitors to get their quotes? Why can't RFXT get a line of credit with a bank like the larger players get? The fact that they can't should send up red flags that these firms are far riskier to trade with than the more well established players.
The more you learn about how smaller forex firms operate (the fraud, the insolvency, the lousy pricing) the more traders should thank their lucky stars the NFA has raised capital requirements to $5 million because this industry is badly in need on an enema.
Quote from forexsavior:
NFA Accuses Royal Forex Trading of Fraud
So how does IKon feel about a division of its company being charged with the following:
"CHEAT, DEFRAUD, DECEIVE FOREX CUSTOMERS"
Isn't that the same thing that FXCM was charged with?
⢠C.R.2-36(b)(1) - CHEAT, DEFRAUD, DECEIVE FOREX CUSTOMERS??
http://www.nfa.futures.org/BasicNet...spx?seqnum=1023
http://www.nfa.futures.org/BasicNet...046&contrib=NFA