Proposed NFA Capital Requirement

I have never said that broker misconduct should be ignored amongst the larger firms. In fact, I have encouraged all traders to review the background of any firm they are considering using the NFA Basic search and to conduct their due diligence. Nor have I ever recommended any one firm to anyone in any of my board postings. I'm not in the solicitation business.

The issue of the moment is capitalization. That is what the NFA is focusing on and that is what I am focusing on. And that is what this thread is all about. But like I said it's a free country and if you want you can go ahead and start your own thread reporting on the misdeeds of the big boys.

But at the moment the big boys are not in danger of going out of business. The Big Boys do not have a track record of collapsing and going insolvent or being forced to shut down by regulators. Poorly capitalized firms do have such a record. That's why the NFA has taken action (http://www.nfa.futures.org/news/new...?ArticleID=1942) by raising capital requirements to $5 million and why I'm reporting it.
 
Quote from forexsavior:

I have never said that broker misconduct should be ignored amongst the larger firms. In fact, I have encouraged all traders to review the background of any firm they are considering using the NFA Basic search and to conduct their due diligence. Nor have I ever recommended any one firm to anyone in any of my board postings. I'm not in the solicitation business.

The issue of the moment is capitalization. That is what the NFA is focusing on and that is what I am focusing on. And that is what this thread is all about. But like I said it's a free country and if you want you can go ahead and start your own thread reporting on the misdeeds of the big boys.

But at the moment the big boys are not in danger of going out of business. The Big Boys do not have a track record of collapsing and going insolvent or being forced to shut down by regulators. Poorly capitalized firms do have such a record. That's why the NFA has taken action (http://www.nfa.futures.org/news/new...?ArticleID=1942) by raising capital requirements to $5 million and why I'm reporting it.
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You can't view that page you've linked to 3 times now. Why is that?
 
Quote from forexsavior:

The Big Boys do not have a track record of collapsing and going insolvent or being forced to shut down by regulators. Poorly capitalized firms do have such a record. That's why the NFA has taken action (http://www.nfa.futures.org/news/new...?ArticleID=1942) by raising capital requirements to $5 million and why I'm reporting it. [/B]
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Ahh ... refco?!

The 5 mil requirement *might* be a start in the right direction but the auditing and the regulation of internal practices of ALL firms should be of equal if not greater importance when it comes to the protection of forex customers/traders.
 
Quote from bigmrfrank:

Ahh ... refco?!
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What about Refco? This is a common refrain I have been hearing from critics of the NFA Forex Dealer Dead Pool. Refco was massive and they went under in record time which proves that being adequately capitalized doesn't matter right? Wrong. While citing Refco is a good sound byte it in no way helps the case of the poorly capitalized. Here's why:

First of all Refco was a gigantic octopus of a company that had various affiliates and subsidiaries that were both regulated and unregulated. The two main players in the Refco saga were Refco Capital Markets (the unregulated outfit in Bermuda that was doing all those shady off-exchange trades) and Refco LLC (which was the licensed futures brokerage most traders knew about.) Refco Capital Markets was where the scandal erupted. For years executives at RCM covered up huge trading losses with creative bookkeeping. But when the scandal became public it caused a bank run everywhere at Refco. The bank run occurred even though Refco had adequate capital to handle the huge trading loss RCM had incurred. But that didn't matter because Refco was a publically traded company. As the stock price tanked talk of lawsuits by shareholders accelerated the bank run and that's when Refco's creditors stepped in and pushed the firm into bankruptcy knowing the only assets the firm had were the customer funds on deposit.

Had Refco not been a public company the scandal would have been a one day hiccup and it would have been business as usual precisely because it had a lot of capital reserves. That is a huge distinction that needs to be made. But when undercapitalized firms such as CFG take huge trading losses there is no room for error. It's one and done because they have no capital in reserve. Again, this is why the NFA has issued this proposal (and passed it.) Poorly capitalized firms do not have the luxury of taking the kinds of hits that large firms can take. This is also why there hasn't been a single case of a registered forex dealer member with over $10 million ever going bankrupt. So to the critics I say cite Refco all you want but it has no place in this debate unless you want to discuss the perils of being unregulated.
 
Quote from forexsavior:

What about Refco? This is a common refrain I have been hearing from critics of the NFA Forex Dealer Dead Pool. Refco was massive and they went under in record time which proves that being adequately capitalized doesn't matter right? Wrong. While citing Refco is a good sound byte it in no way helps the case of the poorly capitalized. Here's why:

THE "ISOLATED CASE" SMOKE SCREEN DELETED
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There are no critics, only skeptics of your motives. It's abundantly clear to most of us. Now we just like poking you with a stick for our own amusement ... and you never disappoint.
 
On Tap for the Next Two Weeks

With the NFA officially hiking the minimum capital requirement to $5 million (http://www.nfa.futures.org/news/new...?ArticleID=1942) all eyes are now on the CFTC. Look for two things:

1) Some kind of formal statement by either the CFTC or the NFA in which CFTC signs off on the NFA proposal (or the unlikely prospect of the CFTC rejecting it.)
2) The new updated CFTC Adjusted Net Capital Report which will be published here: http://www.cftc.gov/marketreports/financialdataforfcms/index.htm

The next updated adjusted net capital report will be particularly revealing. All the firms on this report will have had several months since the proposal was issued to start increasing their reported net capital. While no firm is required to hike their capital yet it will be very telling to see which firms have begun to prepare for the inevitable and which firms continue to hold their cards close to their vest. At this point any firm that isn’t ponying up the dough to capitalize themselves on these reports is really begging the question: is this firm destined to be strapped into the forex dealer electric chair? Or will they get a stay of execution?

My advice to the firms in the Dead Pool is simple: put up the money now and save everyone the trouble of guessing whether or not you will be here a few months from now. If your company capital is tied up and not available at the moment, well, tell the public what it is tied up in and specifically why you are not reporting it. Customers who open accounts with forex brokers are required to detail their own private financial holdings. In light of the seriousness of the capitalization issue, I think forex brokers should be held to the same standard.
 
Quote from itrader911:

well i hope everythig works out for everyone
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Yep, the polemics at hand notwithstanding, I hope no one gets burned by the potential downfall of several small brokers. It's tough enough being a successful trader without having to worry about whether your broker will be in business the next day.

Forexsavior or anyone who knows anything of the matter: What will happen of the smaller firms? Will they just pack up and go overseas? What kind of implications will we see for customer funds?
 
Quote from forex162:

It's tough enough being a successful trader without having to worry about whether your broker will be in business the next day.

Forexsavior or anyone who knows anything of the matter: What will happen of the smaller firms? Will they just pack up and go overseas? What kind of implications will we see for customer funds?
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There is no way of telling what will happen because this capital increase is unprecedented. However, one thing we have seen so far is that firms are trying to merge. We have had two mergers announced in the last few weeks. Other firms are quietly unwinding even as we speak (FiniFX) and other firms appear to be going to hell in a hand basket (One World Capital) and sucking their own clients down into the vortex with them. If you want to take a sneak peek at a worst case scenario you need only have a look at the customers at One World:
http://www.goldenmoneytree.com/forum/viewtopic.php?p=11153#11153

So I don't think anyone is in a position right now to say how this will all turn out. Which is why I'm saying better safe than sorry and avoid these little firms altogether.
 
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