Proposed NFA Capital Requirement
- Thread starter forexsavior
- Start date
I respect your right to draw your own conclusion here and let's face it, $5M is far better than $1M. However, I know when I've been asked to collateralize anything in my own personal life, I never offered to make a larger deposit than required. Why anyone would do that is beyond me.
I emailed him via the forum and I hope he can bring more clarity to this issue than obviously I can.
To understand the MBT model would be helpful in understanding why meeting the current cap requirements of the NFA is plenty sufficient at this time. Anyone can make the claim that there is risk even if we do not have proprietary trading risk like that of deal desks. I guess there is risk of a tsunami engulfing MBT but I don't spend my days dwelling on it. We have ample capital to substantiate the basic business risks associated with agency trading which is what MBT offers. We have also taken several measures to protect MBT against catastrophic events and natural disasters as well. I think you get my point. With that being said I want to discuss my primary focus which is that of the customers. MBT has always treated our customers with their best interest at heart and will continue to do so. Just because there is some obvious scare campaign going on to overcome either technology or culture inadequacies I would never consider diverting my focus of offering the best product to my customers. So, in effort to grow and give customers what they want and need, I do not feel compelled to raise our net cap at a time that does not require it. Back when the NFA raised net cap from 250k to 1 million MBT met the requirement. If at the time the NFA raises the net cap to 5 million then guess what? MBT will meet the requirement at that time. To meet it before would potentially take resources away from developments at the cost to the customer. I wont do it. MBT is privately held, financially sound and with no debt and will continue to operate in the highest standard. I normally would not have responded since I feel confident that those reading this over the past month or more can read between the lines of what is going on but since a customer of MBT asked to respond then I felt compelled to accommodate. I leave everyone with this..... If the goal here is to give forex customers of the world comfort in knowing that because the firm you should be with is safer since it has so much in assets then look at the firms that were listed as the safest based on asset size. Ask yourself one question, how did they get so much in assets? Hint, they don't charge commissions. I hope this helps those that might have needed some input on the matter. Best to all.
Regards,
Steve
Regards,
Steve
Is Your Forex Dealer going to go out of Business?
That is the title of an article by John Jagerson over at PFXglobal:
http://www.pfxglobal.com/index.php?option=com_content&task=view&id=459&Itemid=116
The retail forex business is young and relatively unregulated but that won't last. I was surprised that the regulators have not moved faster in the U.S. when the Refco disaster occurred a few years ago but we are starting to see some action. What's coming down the pipeline might affect your dealer so do your homework and check them out.
Because many forex dealers are headquartered in the U.S. they are subject to the NFA and the CFTC. Although registration requirements for FCMs (Futures Commission Merchants) have been loose in the past, they are tightening fast. There are two big changes coming down the pipe. The one I think retail traders should be aware of is the change to the net capitalization requirement. There is a minimum amount of cash (outside of customer accounts) that an FCM has to have to stay in business. That minimum used to be $250,000 then was recently raised to $1,000,000 and it is now going to be raised to $5,000,000 in the very near term. Did you know that if you are working with a dealer in the U.S. you can find out how much net capital they have? Just go the the CFTC's website and look up their financial data for FCMs. In fact, if you google "CFTC" it will give you a link right to the spreadsheet you want to look at. There is a bunch of other interesting goodies in that spreadsheet as well.
The bottom line is that you should know whether your dealer can meet those requirements because if they can't your account could be tied up while they shut down their operations or raise capital. I realize most of us are working with large dealers but smaller boutique firms have a certain appeal and service levels that attracts a lot of traders. Just make sure you are not working with someone that is too small.
Couldn't have said it better myself...
That is the title of an article by John Jagerson over at PFXglobal:
http://www.pfxglobal.com/index.php?option=com_content&task=view&id=459&Itemid=116
The retail forex business is young and relatively unregulated but that won't last. I was surprised that the regulators have not moved faster in the U.S. when the Refco disaster occurred a few years ago but we are starting to see some action. What's coming down the pipeline might affect your dealer so do your homework and check them out.
Because many forex dealers are headquartered in the U.S. they are subject to the NFA and the CFTC. Although registration requirements for FCMs (Futures Commission Merchants) have been loose in the past, they are tightening fast. There are two big changes coming down the pipe. The one I think retail traders should be aware of is the change to the net capitalization requirement. There is a minimum amount of cash (outside of customer accounts) that an FCM has to have to stay in business. That minimum used to be $250,000 then was recently raised to $1,000,000 and it is now going to be raised to $5,000,000 in the very near term. Did you know that if you are working with a dealer in the U.S. you can find out how much net capital they have? Just go the the CFTC's website and look up their financial data for FCMs. In fact, if you google "CFTC" it will give you a link right to the spreadsheet you want to look at. There is a bunch of other interesting goodies in that spreadsheet as well.
The bottom line is that you should know whether your dealer can meet those requirements because if they can't your account could be tied up while they shut down their operations or raise capital. I realize most of us are working with large dealers but smaller boutique firms have a certain appeal and service levels that attracts a lot of traders. Just make sure you are not working with someone that is too small.
Couldn't have said it better myself...
Vindication
Many forum users have been asking for a specific link to the National Futures Association website so that they can read the proposal for themselves and hear it from the regulators themselves. Well, here it is:
http://www.nfa.futures.org/news/newsRuleSubLetter.asp?ArticleID=1942
As you can see the National Futures Association has spelled out clearly why they wish to raise the minimum capital requirement to $5 million. They apparently mailed out the formal proposal to the CFTC by Federal Express on August 17, 2007. So it looks like the NFA has fully signed off on the proposal. Now all that is required is the CFTC's approval.
I would strongly encourage everyone to read through the NFA's reasoning for increasing the minimum capital requirement at this link here:
http://www.nfa.futures.org/news/newsProposedRule.asp?ArticleID=1941
Everyone will have their own quotes they will highlight. Here are the ones I found most interesting:
"NFA received sixteen comments regarding the proposal. Eight commenters supported the increased capital requirement and eight opposed it."
"The comment letters that opposed the proposal noted that it will likely eliminate a number of the smaller FDMs. These smaller FDMs will be, obviously, those with less capital. The comment letters in opposition also noted that more capital does not necessarily mean that an FDM is better able to support and properly operate its forex activities. While more capital does not necessarily correlate to "better" FDMs, more capital does mean that they will have, at a minimum, a greater financial stake in running their forex businesses."
"One comment letter also noted that an FDM's risk-management and operational internal controls are more important than the amount of capital an FDM has. NFA agrees that an FDM's internal controls are important and, under separate cover, NFA is submitting for Commission approval a new rule to ensure that FDMs have proper internal controls."
"Several FDMs pointed to the recent MRAs and receivership proceedings as evidence that the current regulations are working. Regulating solely by enforcement proceedings is not the best way to protect customers, however. One of these FDMs claims that staff was unfair in its characterization of the problem with FDMs and forex. Specifically, this FDM pointed out that the number of bankruptcies involving traditional FCMs and FDMs is the same, with two of each.5 What this FDM does not recognize, however, is that the two traditional FCM bankruptcies occurred over a seventeen-year history of regulation, while those for FDMs has occurred in only a little more than seven years. Moreover, the traditional FCM population has average around 250 while the FDM population has averaged around 40."
All those critics who've been saying how "alarmist and irresponsible" my postings are now owe me an apology. The NFA itself is saying that the smaller firms opposed to the measure were telling the NFA the proposal could possibly eliminate themselves! That's right, some of the smaller firms in the Dead Pool we're telling regulators "you know this proposal could put us out of business." Yet when I say the same thing to the trading public the call goes out I'm "scare mongering." I'd love to know which firms opposed the rule and why they did. Wouldn't it be amusing to know which firms are right now telling their customers "nothing to worry about this rule won't have any effect on us" while they are pleading with regulators "please don't pass this or we could be forced to go out of business!"
In any case the NFA has apparently brushed aside the dissenters. They have officially put the rule on the table and all it will now take is the CFTC's signature. Apologies will be accepted in the order they are received
Many forum users have been asking for a specific link to the National Futures Association website so that they can read the proposal for themselves and hear it from the regulators themselves. Well, here it is:
http://www.nfa.futures.org/news/newsRuleSubLetter.asp?ArticleID=1942
As you can see the National Futures Association has spelled out clearly why they wish to raise the minimum capital requirement to $5 million. They apparently mailed out the formal proposal to the CFTC by Federal Express on August 17, 2007. So it looks like the NFA has fully signed off on the proposal. Now all that is required is the CFTC's approval.
I would strongly encourage everyone to read through the NFA's reasoning for increasing the minimum capital requirement at this link here:
http://www.nfa.futures.org/news/newsProposedRule.asp?ArticleID=1941
Everyone will have their own quotes they will highlight. Here are the ones I found most interesting:
"NFA received sixteen comments regarding the proposal. Eight commenters supported the increased capital requirement and eight opposed it."
"The comment letters that opposed the proposal noted that it will likely eliminate a number of the smaller FDMs. These smaller FDMs will be, obviously, those with less capital. The comment letters in opposition also noted that more capital does not necessarily mean that an FDM is better able to support and properly operate its forex activities. While more capital does not necessarily correlate to "better" FDMs, more capital does mean that they will have, at a minimum, a greater financial stake in running their forex businesses."
"One comment letter also noted that an FDM's risk-management and operational internal controls are more important than the amount of capital an FDM has. NFA agrees that an FDM's internal controls are important and, under separate cover, NFA is submitting for Commission approval a new rule to ensure that FDMs have proper internal controls."
"Several FDMs pointed to the recent MRAs and receivership proceedings as evidence that the current regulations are working. Regulating solely by enforcement proceedings is not the best way to protect customers, however. One of these FDMs claims that staff was unfair in its characterization of the problem with FDMs and forex. Specifically, this FDM pointed out that the number of bankruptcies involving traditional FCMs and FDMs is the same, with two of each.5 What this FDM does not recognize, however, is that the two traditional FCM bankruptcies occurred over a seventeen-year history of regulation, while those for FDMs has occurred in only a little more than seven years. Moreover, the traditional FCM population has average around 250 while the FDM population has averaged around 40."
All those critics who've been saying how "alarmist and irresponsible" my postings are now owe me an apology. The NFA itself is saying that the smaller firms opposed to the measure were telling the NFA the proposal could possibly eliminate themselves! That's right, some of the smaller firms in the Dead Pool we're telling regulators "you know this proposal could put us out of business." Yet when I say the same thing to the trading public the call goes out I'm "scare mongering." I'd love to know which firms opposed the rule and why they did. Wouldn't it be amusing to know which firms are right now telling their customers "nothing to worry about this rule won't have any effect on us" while they are pleading with regulators "please don't pass this or we could be forced to go out of business!"
In any case the NFA has apparently brushed aside the dissenters. They have officially put the rule on the table and all it will now take is the CFTC's signature. Apologies will be accepted in the order they are received
I am new to this forum, but I agree that ForexSavior is doing a good job by bringing a lot of issues to light. The NFA is going to change the NetCap requirement and that is pretty obvious. However, most of the firms that are going to be affected by it have already been taken out (ie. Nations, UGM, etc) while the others are already on the breaking point (with the current 1 million.) NetCap is a just one piece of the puzzle, albeit a big piece. Many firms have private equity, Venture Capital, and other large publicly traded companies behind them, that can pony up the cash whenever it is needed. People need to understand that many firms are not going to put all of their "excess capital" into an account that is just sitting there, earning next to nothing, when they can take that and invest it elsewhere. Even some of the small firms say, sub 5 million in Cap, still have a lot of funds and come move them around accordingly once anything has been changed. All of the major players who have been around a while, FXCM, Gain, FXSol, IFX, GFT, Oaonda, are not going anywhere because they are all very profitable and most have large companies both public and private behind them. This new net Cap requirement is a good thing but it is not the saving grace of the industry. This industry is young and will continue to grow and work out the kinks, as clients and money managers/IB's continue to become more sophisticated and demand better services.
Quote from forexsavior:
Vindication
All those critics who've been saying how "alarmist and irresponsible" my postings are now owe me an apology. The NFA itself is saying that the smaller firms opposed to the measure were telling the NFA the proposal could possibly eliminate themselves! That's right, some of the smaller firms in the Dead Pool we're telling regulators "you know this proposal could put us out of business." Yet when I say the same thing to the trading public the call goes out I'm "scare mongering." I'd love to know which firms opposed the rule and why they did. Wouldn't it be amusing to know which firms are right now telling their customers "nothing to worry about this rule won't have any effect on us" while they are pleading with regulators "please don't pass this or we could be forced to go out of business!"
In any case the NFA has apparently brushed aside the dissenters. They have officially put the rule on the table and all it will now take is the CFTC's signature. Apologies will be accepted in the order they are received
Your vindication will come <b>if and only if</b> traders end up on the short end of the stick like they did when Refco went under. I have yet to hear of a single trader losing money when NFA shut down any of the firms you've been citing throughout this thread. The fact that the impending increased capital requirement will lead to a flood of bankruptcies and/or fraud has yet to manifest itself and I personally don't buy in to the notion that it will. I'll be more than happy to the first to issue a personal apology on this forum to Forexsavior should the shutdown of any of the FCM's on his list lead to trader loses, but it doubt that's going to be happening.
Speaking of apologies, I hope Forexsavior will be as forthcoming with an apology to all those he has cited as Dead Firms Walking who end up meeting these pending requirements.
My vindication has already come KVincent. As I have shown before customers at One World Capital can't even get their money out now. I pointed this out in previous posts which you have obviously ignored. But then again traders in distress isn't your problem right? One trader at One World thanked me for pointing out the firm's troubles and took his money out right before One World started halting customer withdrawals. If you won't apologize to me perhaps you can apologize to him for urging such information be kept from him.
If you want to bleed for the Dead Firms Walking be my guest. But these firms could publish their financials and let everyone know how much capital they have. Naturally none have done so. And since they are all showing net capital below the minimum requirement the NFA just passed it is perfect legit to point out that indeed they are dead firms walking at the moment. But even prisoners on death row get stays of execution which is why I have also said that many of these firms may survive.
But why should traders take that chance? Oh I forgot, you don't give a damn if a trader loses their shirt in the event one of these firms goes under...
Fact remains, even the One World client who emailed you hasn't lost their money yet. If you read the NFA's complaint, it's obvious management there is seriously lacking. I repeat, when One World declares bankruptcy or absconds with traders funds, I'll gladly offer my apology. Not a minute sooner.
BTW, I just emailed a fellow named Carl Persson listed on One World's site as their managing director requesting he respond to the trader's complaint appearing in this thread. I don't know if he'll bother to answer, but it would be nice to get it from the horse's mouth.
While I personally have never traded with a firm that hasn't continued to report meeting minimum NFA capitalization requirements, I also have another rule and that's not to trade through any broker the NFA or CFTC has sanctioned.
It's puzzling to me that while Forexsavior beats the drum citing one NFA sanction after another against his list of Dead Firms Walking, he never weighs in on the sanctions levied against any of the big boys, e.g., FXCM. It's also interesting to note that a large number of the citations in the complaint against One World are identical to those filed against FXCM. Until he weighs in, I will remain one of those who is convinced there's more to this orchestrated campaign than meets the eye.
If you read the complaint against One World and the two complaints filed against FXCM, there are surprising similarities in that they are cited for many of the same infractions. Interesting to note that the response to the last one filed against FXCM didn't result in a mere denial of allegations but the following statements.
The allegations in Paragraph [numerous citations] constitute conclusions of law to which an answer is required nor proper.
Even more interesting is FXCM's "Affirmative Defense" which begins with the following entry.
1. The First Amended Complaint in relying on NFA Compliance rules 2-9 and 2-36, fails to state a claim on which a claim can be granted because under Section 2 (a) of the Commodity Exchange Act, as amended, 7 U.S.C. 2(a) and other relevant legal authority, the NFA lacks the authority and jurisdiction to sanction FXCM.
Now, please correct me if I'm wrong, but I think "The First Amended Complaint" refers to Count 1 of the most recent complaint. It reads as follows:
"Violation of NFA compliance rules 2-36(b)(1) and 2-36(c): Using deficient promotional material and failing to up hold high standards of commercial honor and just and equitable principals of trade."
What is the objective observer to conclude from FXCM's response? That the NFA and its ethical guidelines are irrelevant?
What say you, Forexsavior? Would agree that traders would be well advised to steer clear of FCMs that have been sanctioned or are in the process of being sanctioned? You can't have it both ways. Either you're interested in protecting the interests of traders or your not.