NFA Dead Forex Firms Walking

Good News/Bad News for U.S. Traders

The NFA has announced that two new rules have been approved by the CFTC and will take effect in the next two months.

National Futures Association | News Center

Rule Number One is the bad news as it bans the practice of “hedging.”

New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as "hedging." A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge.

Rule number two is the good news, as it severely restricts a forex dealer from adjusting prices after an order has been executed.

For orders executed after June 12, 2009, Compliance Rule 2-43(a) will prohibit an FDM from adjusting executed customer orders, with two exceptions. The first exception is where the adjustment is done to settle a customer complaint in favor of the customer. The second exception is where an FDM exclusively operates a "straight-through processing" model and the liquidity provider with which it entered into the automatic offsetting position changes the price of an executed order with the FDM.

Pursuant to the new rule, an FDM that adjusts an executed customer order based on an adjustment by a liquidity provider must provide notice to the affected customer within fifteen minutes of the customer order being executed. The notice must state that the FDM intends to cancel or adjust the order and must include documentation of the price adjustment from the liquidity provider. The FDM must either cancel or adjust all customer orders executed during the same time period and in the same currency pair or option regardless of whether they were buy or sell orders. All cancellations or adjustments of executed customer orders must be reviewed and approved by a listed principal of the FDM who is also an associated person. Such review must be in writing and include the documentation from the liquidity provider, and the written review and documentation must be provided to NFA at [email protected]. Finally, any FDM that may elect to cancel or adjust executed customer orders based upon liquidity provider price changes must provide customers with written notice of that fact prior to the time they first engage in forex transactions.

The second rule is a huge boon to the trading public. No longer will brokers be able to just cancel winning trades from customers because of supposed “price spikes” while simultaneously allowing losing trades to get booked on those same spikes.

Over all, this is a net positive for the trading public. While the hedging rule is heavy handed, customers can always open two accounts and just go long and short in each one. But the price adjustment rule more than makes up for that. Kudos to the NFA.
 
More interesting suggested changes:

----------------------------
February 23, 2009
Via Federal Express
Mr. David A. Stawick
Office of the Secretariat
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581
Re: National Futures Association: Forex Security Deposits - Proposed
Amendments to NFA Financial Requirements Section 12 and Interpretive
Notice Regarding Forex Transactions

Dear Mr. Stawick:

Pursuant to Section 17(j) of the Commodity Exchange Act, as amended,
National Futures Association (“NFA”) hereby submits to the Commodity Futures Trading
Commission (“CFTC” or “Commission”) proposed amendments to NFA Financial
Requirements Section 12 and the Interpretive Notice regarding Forex Transactions.
This proposal was approved by NFA’s Board of Directors (“Board”) on February 19,
2009. NFA respectfully requests Commission review and approval of the proposed
amendments.
PROPOSED AMENDMENTS
(additions are underscored and deletions are stricken through)
FINANCIAL REQUIREMENTS
* * *
SECTION 12. SECURITY DEPOSITS FOR FOREX TRANSACTIONS WITH
FOREX DEALER MEMBERS.
(a) Except as provided in (b) below, eEach Forex Dealer Member shall collect
and maintain the following minimum security deposit for each forex transaction
between the Forex Dealer Member and a person that is not an eligible contract
participant as defined in Section 1a(12) of the Act:
* * *
Mr. David A. Stawick February 23, 2009
2
(b) A Forex Dealer Member that consistently maintains adjusted net capital of
at least 150% of the greater of the amount required by Section 11(a)(i) or (ii) of
these Financial Requirements is exempt from (a) above.
(c) The Executive Committee may temporarily increase these requirements
under extraordinary market conditions.
(d)(c) For purposes of this rule:
(1) “Forex” has the same meaning as in Bylaw 1507(b); and
(2) “Forex Dealer Member” has the same meaning as in Bylaw 306.
(e)(d) In addition to cash, a Forex Dealer Member required to collect and
maintain a minimum security deposit under (a) above may accept those
instruments described in CFTC Rule 1.25 as collateral for customers’ security
deposit obligations. The collateral must be in the FDM’s possession and control
and is subject to the haircuts in CFTC Rule 1.17.
* * *
INTERPRETIVE NOTICES
* * *
FOREX TRANSACTIONS
* * *
C. OTHER REQUIREMENTS
* * *
4 Financial Requirements Section 12
* * *
This requirement does not apply to any Forex Dealer Member that
consistently maintains adjusted net capital equal to or in excess of 150% of the
Mr. David A. Stawick February 23, 2009
3
greater of the amount required by Section 11(a)(i) or (ii) of the Financial
Requirements. A Forex Dealer Member claiming the exemption must file
advance written notice with NFA. If a firm that claims the exemption falls below
150% of its capital requirement under Section 11(a)(i) and (ii), it must
immediately notify NFA. If the firm does not come back into compliance within 48
hours, it must collect the required security deposits on all customer positions and
may not claim the exemption for six months. A firm that claims the exemption but
falls below the required capital amount three times within 90 days may not claim
the exemption for six months.18
_____
18 For this purpose, underages within the same U.S calendar day are one
occurrence.
EXPLANATION OF PROPOSED AMENDMENTS
NFA Financial Requirements Section 12 requires Forex Dealer Members
("FDMs") to collect a security deposit of 1% of the notional value for specified currencies
(called major currencies in the rest of this discussion) and 4% of the notional value for
all other currencies.1 The rule also provides an exemption from collecting these
amounts if an FDM maintains 150% of its capital requirement.
When NFA adopted Section 12 in 2003, it required a security deposit of
2% for major currencies and 4% for all other currencies. This was consistent with the
margin requirements on the CME’s IMM at the time, which averaged 2% for major
currencies and 3.9% for other currencies.
Before the rule became effective, NFA met with a number of FDMs that
were concerned with the 2% requirement for the major currencies. These FDMs
represented that the industry standard was 1% and that NFA’s requirement put them at
a competitive disadvantage. NFA agreed to re-examine the security deposit
requirement and issued an interim no-action position, allowing firms to charge 1% for
the major currencies while NFA studied the matter. After evaluating its experience with
the 1% level, NFA amended Section 12 to lower the requirement for the major
1 The currencies that qualify for the 1% security deposit are the British pound, the Swiss
franc, the Canadian dollar, the Japanese yen, the Euro, the Australian dollar, the New
Zealand dollar, the Swedish krona, the Norwegian krone, and the Danish krone.
Mr. David A. Stawick February 23, 2009
4
currencies to 1%, and it adopted the exemption mentioned above, except that firms
were required to maintain twice their capital requirement to qualify.
When NFA adopted the exemption, the minimum capital requirement for
FDMs was $250,000. Given the substantial increase in the minimum capital
requirement, in August 2008 NFA lowered the exemption threshold from 200% to 150%
of an FDM’s capital requirement.2 The Board understood, however, that staff was
continuing to study the security deposit requirement and ultimately would recommend a
different approach.
Staff's research focused on two areas. First, staff examined IMM margins
to see how they compare with the security deposits required by Section 12. Second,
staff also examined the actual leverage amounts offered by individual FDMs .
Current IMM margins are substantially higher than they were at the time
Section 12 was adopted. As of December 24, 2008, margins for the major currencies
averaged 5.6% and ranged from 3.5% to 8.2%. Margins for the other currencies traded
on the IMM averaged 8.1% and ranged from 3.2% to 12.5%.
As with exchange margin, the primary purpose of the security deposit is to
protect the FDM from absorbing the losses of defaulting customers which, if significant
enough, could affect the FDM’s capital and put the funds of its other customers at risk.
Based on our experience with FDM practices, including that most FDMs use systems
that liquidate customer positions before they reach a negative balance, NFA believes
that the 1% and 4% security deposit requirement amounts remain sufficient at this time
to protect against financial harm to FDMs and their customers even though they are
significantly lower than margin requirements for on-exchange equivalents.
On the other hand, NFA is concerned that higher leverage amounts can
deplete a customer’s account balance — and result in forced liquidation — much faster
than retail customers realize.
Of 21 FDMs, eight have the exemption from collecting
minimum security deposits. Of these eight, one offers leverage of 700:1, four offer
leverage of 400:1, two offer leverage of 200:1, and one offers leverage of 50:1. One of
the firms without the exemption also offers leverage of 50:1
.
A proportionately greater
number of the firms that offer higher leverage have also been the subjects of NFA
2 The FDM capital requirement was $5 million in August and will increase to $20 million
by May 2009.

Mr. David A. Stawick February 23, 2009
5
complaints, while neither of the firms that offer 50:1 leverage has ever been the subject
of an NFA or CFTC enforcement action.3
These statistics indicate that FDMs can compete while offering leverage of
100:1 or less and that higher amounts can lead to abuses. The amendments leave the
minimum security deposit amount at 1% and 4% and eliminate the exemption.

Under
the amendments, no FDM would be allowed to offer more than 100:1 leverage on the
major currencies or more than 25:1 leverage on other currencies.



This would bring the
operation of the forex requirement more in line with on-exchange margins, which are not
affected by the firm’s capitalization, while the required amounts would still allow FDMs
to offer significantly higher leverage than is currently available for IMM contracts.
NFA's FCM Advisory Committee supported these amendments. NFA also
sent the amendments to the FDMs for their comments and received eight responses.
One FDM with a large customer base fully supported this proposal, noting that it uses
50:1 leverage for the major currencies and has resisted customer requests for higher
leverage because these levels force liquidation too quickly and frequently to be in a
customers’ best interests. Another FDM supported eliminating the exemption but
suggested that the requirement be changed to allow FDMs to offer 200:1 leverage in
order to compete internationally. Five other letters also claimed that restricting them to
100:1 leverage would put them at a competitive disadvantage internationally. While
these letters opposed the proposal, several of them stated that the international average
is 200:1 and this level would be an acceptable compromise. The other FDM opposed
the proposal because it limits an FDM’s ability to use increased leverage as an incentive
to place close-in stop orders.4
Commenters proposed several other alternatives besides increasing the
allowable leverage to 200:1. One suggested providing exemptions for FDMs with
effective risk management systems. Another commenter — whose preferred result is to
increase the leverage to 200:1 — proposed, alternatively, that the rule only apply to
U.S. customers. The ability to make these distinctions, however, may be problematic
since one commenter stated that even the disparity between the allowable leverage for
major and minor currencies creates programming inefficiencies.
3 Of the 20 FDMs, eight have been named in ten complaints issued by the Business
Conduct Committee in connection with their forex business. Seven of those complaints
were against five FDMs that offer more than 100:1 leverage (including two firms with
two complaints each).
4 This firm offers as much as 700:1 leverage.
Mr. David A. Stawick February 23, 2009
6
Finally, three letters took issue with comparing OTC security deposits with
exchange margins. These letters suggested three factors that give FDMs more control
over the risk in customer transactions than FCMs have over on-exchange transactions:
FDM systems generally automatically liquidate positions before the account goes into
deficit; the OTC forex markets operate continuously, with no gap between closing prices
and the next day’s opening prices; and market-making gives firms more control over
prices.
After reviewing the comments, NFA believes that the amendments are the
best way to address NFA’s customer protection concerns with certain FDMs’ use of
leverage. As noted above, the amendments already take the difference between onexchange
and off-exchange markets into account and allow higher leverage for OTC
trades than is currently available for exchange transactions. Regarding the competition
issue, two FDMs voluntarily use 50:1 leverage and those without exemptions manage
with 100:1 leverage, indicating that firms can engage in the retail forex business and
attract customers at these levels. Furthermore, the FDM that uses higher leverage to
encourage close-in stop orders actually exemplifies one of the problems NFA is trying to
address — that higher leverage can deplete the account balance and result in forced
liquidation much faster than customers may realize.
NFA respectfully requests that the Commission review and approve the
amendments to NFA Financial Requirements Section 12 and the Interpretive Notice
regarding Forex Transactions.
Respectfully submitted,
Thomas W. Sexton
Vice President and General Counsel
--------------------------------------------

Laverage... I trade with 50:1, with other firm I usually go with 100:1.
I've never trade with higher than 100:1...but 25:1.... might be some trouble...
 
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So interesting how the regulators are very strict with the online bucket shops because basically they aren't rich and don't pay millions to the campaign funds of the politicians.

But the big wall street firms - it's a totally different story there :)
 
Is there more to the Hedging Rule than meets the Eye?

Lots of news to cover with I Trade FX being fined, Crown Forex in a knock down drag out fight with clueless Swiss regulators and the next cap requirement set to kick in. More on these topics in the days to come…

But I’ve been doing a lot of reading about this hedging rule on the bulletin boards and it appears this rule could be far more consequential than originally thought.

First of all let’s look at the language in the NFA rule itself:
National Futures Association | News Center

New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as "hedging."

“First in, First out” is not a concept that comes into play all that often in forex trading. Traders can hold multiple positions in the same currency pair and close any of those positions at any time in any order they like. Is NFA now saying that traders can no longer do this? Is the NFA rule not only intended to ban hedging, but to completely make over the manner in which traders can open and close their positions? If so that’s pretty big news. I checked in with a couple brokers and they are tight lipped at the moment as they are still waiting for guidance from the NFA itself.

The deadline to convert to a no-hedging platform is June 12.

Developing…
 
So long Stop & Limit Orders?

The new hedging rule, which is set to kick in on May 15, (the June 12 date is when grandfathered orders must be closed as well), is even more complicated than first thought.

First, Back Bay FX, an introducing broker to several of the big forex dealers, is confirming that FIFO will be the new order of the day:
Forex Factory - View Single Post - NFA New Rule Not allowing stop and limit orders

Hi All,

As part of our due diligence on the NFA's "anti-hedging" rule from April 13 (NFA rule 2.43(b)), we have been informed of a follow up or clarification from the NFA. We have not been able to get the NFA to confirm or deny, but we have heard from multiple independent sources.

The NFA has informed the clearing firms that they will need to use First In-First Out (FIFO) accounting for retail traders. This has an important effect on all traders, but specifically MetaTrader4 users!!

FIFO accounting means that if a trader has a position in a currency pair that was formed by the combination of two orders, when the trader goes to close out a portion of that position, the first order in will have to be the first order closed. HUH? Here is an example of the new ruling:

Trader bought 100,000 EUR/USD this morning (call it the morning trade), and bought another 100,000 this afternoon (call it the afternoon trade). So the total position is 200,000 EUR/USD. When the trader chooses to close part of his position by selling 100,000 EUR/USD......the trader must close the morning trade. He/She can not close the afternoon trade before the morning trade. Sooooooo.....

This ruling will significantly affect the use of Stop Loss and Limit Orders on open positions. Think of it....in the above example, you would not be able to put a Take Profit order on your afternoon trade until/unless you had closed the morning trade; the closing order of the open trades must be FIFO! Without some complicated changes being made to the coding of the retail FX platforms, the clearing firms will have to eliminate the use of Stops and Limits.

This clarification (once confirmed) will effect almost all trading styles, but specifically effect the following strategies:

- Martingale
- Grid Trading
- One Cancels Other (OCO) orders

Please note that the above is in addition to the main part of rule 2.43(b) which eliminates hedging for retail traders.

Francesc at FX Street received the same information this morning from an executive at another fx dealer:
Francesc’s Weblog NFA - Not allowing stop and limit orders

An important executive of the Retail Forex industry just informed me that the NFA will not be allowing stop and limit orders on open positions either, as this conflicts with their FIFO - first-in, first-out - new policy. This goes into effect may 17th.

This is bound to rock the U.S. retail industry and send customers packing in droves. How can the NFA ban this critical risk management tool? Trading without a stop is like driving in a demolition derby without a seat belt. Traders should follow this news very closely and if it turns out to be true start researching brokers that have offices in the U.K.
 
FXCM Buys I Trade FX

Looks like I Trade FX is throwing in the towel. With the NFA fining them $250,000 over the Olint affair and the $20 million capital requirement set to kick in I Trade FX is officially calling it quits: FXCM Acquires Clients of i-Trade FX

New York―May 4, 2009―Forex Capital Markets LLC (Forex | currency trading | forex trading | forex broker) today announced it has reached an agreement to acquire the U.S. and international retail forex clients of i-Trade FX. Subject to regulatory approval, accounts are expected to be transferred from i-Trade FX to FXCM on May 8, 2009. Like several other forex firms, i-Trade FX has decided to cease offering service to US retail clients. Other firms that have decided to exit the U.S. retail business include ODL Securities, Hotspot FX, and CMC Markets. To offer retail forex trading services under NFA rules, Forex Dealer Members (FDMs) will be required to have a minimum of $20 Million in firm capital as of May 16, 2009.

The U.S. industry consolidation should continue in the months to come as cap increases and a battery of new regulations continue to squeeze the market.

Next up, CFTC Net Capital report for March.
 
NFA Delays Ban on Stops/Limits

NFA Delays Ban on Stops/Limits

Francesc at FX Street is hearing that the NFA’s rule banning the use of stops/limits as part of the NFA’s new FIFO edict will not be enforced until July 31st:

Francesc’s Weblog Update1 NFA Not allowing stop and limit orders - FIFO delayed to July 31st

Hi everyone

On April 30th I published here that the NFA will not be allowing stop and limit orders on open positions as this conflicts with their FIFO - first-in, first-out - new policy.

This had to go into effect may 17th along the announced prohibition of hedging.

At this time, the only update I’ve got so far is that due to the strong opposition of forex brokers, FIFO is being delayed to July 31st.

Francesc
Never a dull moment in the U.S. forex market.
 
GFS Shutting Down U.S. Forex Operation

The stampede of small brokers out of the U.S. market continues. GFS Forex and Futures has announced they are shutting down their U.S. forex operation. GFS has purchased City Credit Capital in the U.K. and is relocating their business to London. However, they are no longer allowing U.S. customers to trade forex with them:
GFS Forex & Futures, Inc.

Dear Valued Clients,

GFS Forex & Futures, Inc. is pleased to announce that we will be expanding territorially with the anticipated merger of City Credit Capital (UK) Ltd. ("CCC"), a United Kingdom based brokerage firm registered with and regulated by the Financial Services Authority ("FSA"). As part of this expansion, GFS is moving its trading operations for over-the-counter products to our London operations.

Because this move means that our US operation will no longer be able to handle your forex trading account, you will need to transfer or close your GFS forex account. You should, therefore, decide which course of action you want to pursue. You can liquidate your open positions at anytime and close your account simply by completing and submitting the GFS Fund Withdrawal Form available on GFS' website. We will also assist you in transferring your account to a forex broker of your choice.
If you have questions about these matters or wish to deliver your transfer or liquidation orders personally, you can contact Mr. Alan Ho at GFS Forex and Futures, Inc., One Post Street, Suite 2550, San Francisco, CA 94104, (415) 321-7188, [email protected].

You need to understand that the last trading day for your GFS forex account will be Friday May 8, 2009. If you have not already closed or transferred your account before this date, by 4:00 pm East Coast Time on 8th May 2009, all open positions will be automatically closed at that day's closing price and any funds remaining in your account will be sent to you. Please recognize that we may need to verify a current wire transfer address for receipt of your funds and may need to contact you to obtain this information.

On April 20, 2009, GFS posted a notice on its website which could be taken as an offer for GFS to transfer your forex account to CCC. While CCC is registered with the FSA in the UK, it is not registered in any capacity with the CFTC nor is CCC a Member of NFA. Pursuant to the Commodity Futures Modernization Act (the "Act") and NFA Rules, GFS may only transfer forex accounts and positions of its US retail customers to certain enumerated entities to act as the new counter-party for any such transferred forex positions. CCC is not such an enumerated entity under the Act or NFA Rules.

Consequently, if you are one of our US retail customers, GFS may not transfer your forex positions or account to CCC. GFS regrets any confusion this posting may have caused.
Once again, the moral of the story is to stay clear of these smaller U.S. based forex dealers until they can clearly meet the $20 million capital requirement and demonstrate that they can adapt to the NFA’s new rules and regulations. Having your account forcibly liquidated with barely any notice should not be part of the bargain when you open up an account with a forex dealer.

The CFTC should be releasing their new financial data any day now. It should be required reading for anyone with an account in the U.S.
 
March Net Capital Numbers

The CFTC has just released their latest net capital figures. With I Trade FX and GFS Forex departing the U.S. market that leaves only a little more than a dozen firms left standing.

Financial Data for FCMs

The following firms have net capital below $20 million

Easy Forex $15,552,000
Ikkon Royal $16,423,000
Alpari $16,557,000
MB Trading $17,031,000
Advanced Markets $19,686,000

The following firms have net capital above $20 million

Forex Club $21,354,000
CMS Forex $29,360,000
PFG $30,444,000
Interbank FX $38,393,000
FX Solutions $45,032,000
GFT Forex $87,169,000
Gain Capital $95,879,000
FXCM $113,463,000
Oanda $161,723,000

As always conduct your due diligence and make sure the firm you are trading with will be able to comply with the new $20 million capital requirement that is about to go into effect.
 
I continue to trade Forex with MB (having already been 'inherited' as a customer of EFX).
The platform and service is really fairly good and I'm reluctant to pull out unless really necessary.

This thread does make sobering reading though. Many thanks to the OP and contributors.
 
FXDD's Ominous Anniversary

FXDD is making waves these days by refusing to adopt the NFA’s new hedging rule:

Francesc’s Weblog Retail Forex Industry - FXDD fights NFA’s Hedging rule while FXSolutions launches Gold & Silver trading

To our valued clients,

In our effort to provide the best solution for your trading regarding the NFA’s new rule on hedging, please know that we have been in contact with the NFA and have offered several solutions which we believe will accommodate almost all types of trading strategies and comply with the NFA rules. Our discussions with the NFA are ongoing and we will keep you advised. In the mean time, know that FXDD is making no immediate changes to any platforms and that you will be fully advised prior to any proposed changes.

The FXDD Team.

How can they do this? Simple. FXDD still isn’t licensed by the NFA.

BASIC Details

It’s easy to thumb your nose at regulators when you don’t actually have to answer to them. FXDD applied to become a member of the NFA in April of 2008. One year later their application remains unapproved.

Should traders be concerned about this? Absolutely. Not only is FXDD unlicensed (and therefore in possible violation of U.S. law) but now they are actually thumbing their nose at the very regulator who they are seeking to get that license from.

This is not prudent behavior on FXDD’s part and traders should stay clear of this firm until they are actually authorized to operate inside the United States.
 
FXDD is making waves these days by refusing to adopt the NFA’s new hedging rule:

Francesc’s Weblog Retail Forex Industry - FXDD fights NFA’s Hedging rule while FXSolutions launches Gold & Silver trading



How can they do this? Simple. FXDD still isn’t licensed by the NFA.

BASIC Details

It’s easy to thumb your nose at regulators when you don’t actually have to answer to them. FXDD applied to become a member of the NFA in April of 2008. One year later their application remains unapproved.

Should traders be concerned about this? Absolutely. Not only is FXDD unlicensed (and therefore in possible violation of U.S. law) but now they are actually thumbing their nose at the very regulator who they are seeking to get that license from.

This is not prudent behavior on FXDD’s part and traders should stay clear of this firm until they are actually authorized to operate inside the United States.

This is good that NFA looks for our safety as customers. On the other hand - it was those small companies that briought evolution to trading and market. I fear that some day we will end up in environment where there are only few big companies, profiting from the fact that there is virtually co competition.

I started trading 8 years ago with very small and unknown company(for obvious reasons I will not name them). Today they have more than $20 M. I never had problems with them and to be honest I am not sure if all those NFA regulations changed anything. for me as a client
 
FXDD Not Fighting, Just "talking" with NFA

Interesting post from Francesc at FX Street regarding FXDD’s decision not to implement the NFA’s new hedging rule. Jim Green, Managing Director at FXDD, wrote in to say that FXDD “was not fighting NFA.” They’re just having “constructive conversations” with NFA about the new hedging rule:

Francesc’s Weblog Retail Forex Industry - FXDD Fighting NFA Hedging Rule a Misleading Information. Apologies FXDD

“Dear Francesc: It has been some time since we last communicated. Although FXDD enjoys the coverage it (usually) receives on FXstreet, your recent headline was somewhat misleading and I want to state for the record that FXDD is not fighting the NFA on the hedging rule. As you know, FXDD is pending with the NFA and we discuss our application with the designated parties at the NFA. Our discussions with the NFA should not be interpreted as “fighting.” We have had and continue to have very constructive conversations with the NFA in terms of the practical application of the new rule and, for purposes of the rule, what actions are permissible.

I respectfully ask that you clarify our position with your readership.”

Ok. FXDD may not believe they are fighting with NFA, but how else should NFA interpret FXDD’s decision not to implement the new hedging rule?

Of course, in fairness to FXDD, why should they implement a regulatory rule that will be harmful to their business if this same regulator continues to stall on their license application? This could be FXDD’s way of saying “give us a license, then we’ll implement your rules.”

But is it wise to take on NFA like this? This is why traders should sit on the sidelines until FXDD gets that license. They are playing a game of chicken with regulators. And in the current climate we are in where regulators are under enormous pressure to crack down on rogue financiers no trader wants to be in the middle of what could be one ugly head on collision.
 
What do Crown Forex and Chrysler have in Common?

They are both stuck in bankruptcy with creditors (and traders) waiting in a line that stretches around the block. Let that be a lesson to anyone who owns shares in General Motors or has an account with an unlicensed Swiss Broker.

Here are the details of the Crown Forex Bankruptcy:
Francesc’s Weblog FINMA Opens Bankrupcy Process of Crown Forex S.A

Dear clients,

The Swiss Financial Market Supervisory Authority (FINMA) has rendered on May 18, 2009 a decision opening the bankruptcy of CROWN FOREX SA as of Tuesday May 19, 2009 at 08:00 am (Swiss time).

The decision will be published on May 29, 2009 at 10:00 am (Swiss time).

Philippe von BREDOW and Laurent WINKELMANN have been appointed as bankruptcy liquidators by the FINMA.

Effective immediately, as of the date and time of the bankruptcy opening, the activities of CROWN FOREX SA are suspended, the company, its Directors and officers are forbidden to make or receive payments, and all the clients’ open positions are closed.
We thank you to communicate to the liquidators, until June 30, 2009, in writing the following :

1. Account Number and relevant details;
2. Open positions as of Tuesday 19 May 2009 at 08:00 (Swiss time), together with supporting documents thereof;
3. Any additional claim you may have toward CROWN FOREX SA;
4. Any debt you may have toward CROWN FOREX SA.

Sincerely
Philippe von BREDOW - Laurent WINKELMANN
NOTTER MEGEVAND & PARTNERS
Place Edouard-Claparède 3
1205 Genève
SWITZERLAND
[email protected]
[email protected]
This is why traders need to beware opening an account with any Swiss broker that doesn’t have a banking license. Notable Swiss brokers like ACM, DukasCopy and MIG have all applied for licenses. But they do not yet have that license. Beware opening an account with these firms until they do, lest you end up like the poor sods at Crown Forex.
 
They are both stuck in bankruptcy with creditors (and traders) waiting in a line that stretches around the block. Let that be a lesson to anyone who owns shares in General Motors or has an account with an unlicensed Swiss Broker.

So you suggest that there are Swiss brokers who are licensed? Back in a days I was trying to set up forex company in Switzerland - I do not remember any license was needed there. They had "anti-laundering" agencies but no 'serious' market regulators.
 
Top Forex Dealers by Volume

Michael Greenberg at Forex Magnates has released an interesting new survey on forex broker trading volumes (in the billions).

Top retail Forex brokers report well over $100B in daily traded volume | Forex Magnates

Monthly Trading Volume

1. FXCM $560,000,000,000
2. Oanda $338,000,000,000
3. Saxo Bank $225,000,000,000
4. Gain $200,000,000,000
5. GFT $175,000,000,000
6. ACM $150,000,000,000
7. PFG $85,000,000,000
8. IBFX $80,000,000,000
9. Alpari $60,000,000,000
10. IG Index $60,000,000,000

This is a useful tool for determining a broker’s size and stability (in addition to the net capital numbers.)

The following firms have net capital below $20 million
Easy Forex $15,552,000
Ikkon Royal $16,423,000
Alpari $16,557,000
MB Trading $17,031,000
Advanced Markets $19,686,000

The following firms have net capital above $20 million
Forex Club $21,354,000
CMS Forex $29,360,000
PFG $30,444,000
Interbank FX $38,393,000
FX Solutions $45,032,000
GFT Forex $87,169,000
Gain Capital $95,879,000
FXCM $113,463,000
Oanda $161,723,000
 
April Net Capital Report

The CFTC has just released their latest net capital figures. These appear to be the finalists who have survived the net capital guillotine:

Financial Data for FCMs

The following firms have net capital below $20 million

Easy Forex $15,549,000
Ikkon Royal $16,355,000
MB Trading $17,100,000
Advanced Markets $19,796,000

The following firms have net capital above $20 million

Alpari $20,975,000
Forex Club $21,795,000
CMS Forex $29,649,000
Interbank FX $36,507,000
PFG $36,843,000
FX Solutions $41,546,000
FXCM $60,472,000
GFT Forex $80,693,000
Gain Capital $90,801,000
Oanda $159,739,000
 
Forex Dealer Dead Pool Alumnus Busted for Fraud

Former SNC Investment CEO Peter Son has been hauled into court by federal regulators a year after he disappeared during an NFA investigation into missing funds covered on this thread back in October of 2008:

NFA Forex Dealer Dead Pool - Page 21 - Forex Forum - FXstreet.com

The feds are now confirming that Peter Son was running an $80 million ponzi scheme:

http://www.sec.gov/litigation/complaints/2009/comp21076.pdf

Among the SEC’s findings:

Son used investor funds to pay the mortgage on his $2.6 million home in Blackhawk, a gated community in Danville, California, his homeowner’s association dues, and his country club dues;

Son used SNCA investor funds to pay his wife a salary of $3,000 per month even though she did no work for SNCA;

Son and Chung Transferred SNCA investor funds to SNCI to help it meet regulatory requirements that it maintain certain levels of capital; and

Son and Chung transferred SNCA investor funds to SNCI’s Korean bank account, to Son’s Korean bank account, and to the Korean bank account of a Korean company under Chung’s control.

After covering these poorly capitalized firms for years I’m not the least bit surprised that SNC illegally used customer funds to meet their capital requirements back when they were still registered with the NFA. That’s why cap requirements had to be raised and thankfully the worst of these brokers are long gone in the U.S.

But let this be a lesson to the trading public to avoid opening an account with any poorly capitalized firm, or a firm that is not regulated and does not disclose their financials.
 
IBFX Plays Chicken with FIFO Deadline

On July 31 the NFA’s FIFO order comes into effect. As of this moment the MT4 trading platform is not compliant with this rule and there is no guarantee that it will become compliant come the July deadline.

For firms that heavily rely on MT4 this is bad news. FXDD, which uses MT4 but are not regulated and therefore under no obligation to comply with NFA rules at present, are taking advantage of their unregulated status by telling NFA to get bent. As an unregulated firm they can do what they like (then again the whole issue of FXDD being unregulated is a serious red flag in and of itself. After all, the feds could basically raid the firm at anytime and shut them down overnight.)

But IBFX is (unfortunately for them) regulated solely by the NFA and their only trading platform at present is MT4. What is IBFX to do?

IBFX’s CEO seems confident and in “nothing to see here style” stated the following in an email to customers:

Forex Factory - View Single Post - All USA FX dealers may not be able to support MT4

To our valued clients,

As you may know, the National Futures Association (NFA), has implemented new First-in, First-out (FIFO) requirements that will be in effect as of July 31, 2009. We at Interbank FX have been working hard on a solution and are confident that our traders will be able to use our MetaTrader 4 platform with little or no interruption. They will also continue to be able to use their MT4 expert advisors.

The NFA is striving to ensure the highest levels of integrity from all market participants and their intermediaries. We want to assure you that Interbank FX strives to be 100% compliant with the NFA.

We are currently working on some informational and instructional videos regarding the FIFO requirements and our solution, however most of you will be able to continue trading without any impact to your platform or strategies. In our effort to provide the best solution for your trading, you will be fully advised prior to any proposed changes.

We thank you for your continued support and wish you the best of luck with your trading.

Best regards,

Todd Crosland
and the Interbank FX Team

That all sounds reassuring, but what if something isn’t worked out by July 31st?

Meta Quotes is under no obligation to jump through hoops for IBFX and the NFA. And if Meta Quotes chooses not to (or is technically unable to) make any major changes to MT4 then IBFX is in big, big trouble as they will be stuck with a platform that is basically illegal.

Would IBFX close? Would they halt trading? Would the NFA and CFTC step in? Would IBFX be granted an extension by regulators? Can they get a UK license in time? Can they roll out a new trading platform in time?

Finally, how on earth did IBFX allow itself to be put in such a vulnerable position where their entire company is at the mercy of an independent third party based in Russia?

These should be mandatory questions that every current and potential customer of IBFX should be asking.
 
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