US futures brokers could be forced out of business if Washington regulators push forward with a plan to increase capital requirements by at least 25 per cent, one of the biggest companies in the sector has warned.
The proposal by the Commodity Futures Trading Commission, which has caused alarm within the industry, is a central part of the Obama administrationââ¬â¢s attempt to raise the amount of capital held by financial services companies as it seeks to encourage deleveraging.
The reaction to the CFTCââ¬â¢s proposals highlights the tension emerging between regulators and policymakers, who want to use higher capital requirements to discourage risky activity, and bankers, who fear that too onerous rules will kill off what they see as legitimate business.
The CFTC is proposing to increase to 10 per cent the amount of money that a broker, or ââ¬Åfutures commission merchantââ¬Â (FCM), must set aside from its own funds, to cover unforeseen losses by its clients or as a result of its own trading activities. Currently, that percentage stands at 8 per cent for margin held by an FCM in customer accounts and 4 per cent for non-customer accounts.
In spite of several requests for an extension, the CFTC is insisting that any comments on the proposal be submitted by the end of today.
Newedge, one of the worldââ¬â¢s biggest futures brokers, said the plan would mean ââ¬ÅFCMs being required to increase their capital by hundreds of millions of dollarsââ¬Â.
ââ¬ÅWe believe that FCMs that do not carry out nor have access to large amounts of capital in excess of current requirements ââ¬â but are otherwise financially stable as a result of customer margin deposits and low-risk business models ââ¬â would be forced to go out of business,ââ¬Â Newedge warned.
Newedge also said it would be unfair to apply an ââ¬Åacross-the-boardââ¬Â capital increase without taking into account the fact that some companies trade more on their own account than others.
The Futures Industry Association, which represents FCMs in the US, said the proposal would have ââ¬Åa dramatic impact on the capital requirements of our membersââ¬Â.
The CFTCââ¬â¢s proposal comes as the UKââ¬â¢s Financial Services Authority is also reviewing arrangements for the holding of client positions and margins at clearing houses.
Both the US and UK developments are part of a global re-assessment of the capital required by banks, brokers and financial companies which is likely to result in institutions being required to set aside higher levels of capital.
Anthony Belchambers, chief executive of the London-based Futures and Options Association, said: ââ¬ÅIt is terribly important that we pay enough attention to the market consequences of severe increases in regulatory capital as we do to making sure that they are properly risk-based.ââ¬Â
http://www.ft.com/cms/s/51fcbdf2-69...dc0.html&_i_referer=http://www.ft.com/home/us
The proposal by the Commodity Futures Trading Commission, which has caused alarm within the industry, is a central part of the Obama administrationââ¬â¢s attempt to raise the amount of capital held by financial services companies as it seeks to encourage deleveraging.
The reaction to the CFTCââ¬â¢s proposals highlights the tension emerging between regulators and policymakers, who want to use higher capital requirements to discourage risky activity, and bankers, who fear that too onerous rules will kill off what they see as legitimate business.
The CFTC is proposing to increase to 10 per cent the amount of money that a broker, or ââ¬Åfutures commission merchantââ¬Â (FCM), must set aside from its own funds, to cover unforeseen losses by its clients or as a result of its own trading activities. Currently, that percentage stands at 8 per cent for margin held by an FCM in customer accounts and 4 per cent for non-customer accounts.
In spite of several requests for an extension, the CFTC is insisting that any comments on the proposal be submitted by the end of today.
Newedge, one of the worldââ¬â¢s biggest futures brokers, said the plan would mean ââ¬ÅFCMs being required to increase their capital by hundreds of millions of dollarsââ¬Â.
ââ¬ÅWe believe that FCMs that do not carry out nor have access to large amounts of capital in excess of current requirements ââ¬â but are otherwise financially stable as a result of customer margin deposits and low-risk business models ââ¬â would be forced to go out of business,ââ¬Â Newedge warned.
Newedge also said it would be unfair to apply an ââ¬Åacross-the-boardââ¬Â capital increase without taking into account the fact that some companies trade more on their own account than others.
The Futures Industry Association, which represents FCMs in the US, said the proposal would have ââ¬Åa dramatic impact on the capital requirements of our membersââ¬Â.
The CFTCââ¬â¢s proposal comes as the UKââ¬â¢s Financial Services Authority is also reviewing arrangements for the holding of client positions and margins at clearing houses.
Both the US and UK developments are part of a global re-assessment of the capital required by banks, brokers and financial companies which is likely to result in institutions being required to set aside higher levels of capital.
Anthony Belchambers, chief executive of the London-based Futures and Options Association, said: ââ¬ÅIt is terribly important that we pay enough attention to the market consequences of severe increases in regulatory capital as we do to making sure that they are properly risk-based.ââ¬Â
http://www.ft.com/cms/s/51fcbdf2-69...dc0.html&_i_referer=http://www.ft.com/home/us
