Proposed NFA Capital Requirement - page 11

 
forexsavior:
It's been close to two months since I started reporting on Dead Forex Firms Walking. Since my first post much has changed and the list is in need of an update. So here it is, Introducing:

NFA Dead Forex Firms Walking, version 2.0: (Adjusted Net Capital as of May, 2007, direct from the CFTC: http://www.cftc.gov/files/tm/fcm/tmfcmdata0705.xls)

Advanced Markets ($1,021,000)

American National Trading Corp ($1,985,000)

Bacera Corporation (Shutdown!)

Cal Finanical Corporation (Shutdown!)

Direct Forex ($1,406,000)

E FX Options ($2,631,000)

Forex Club ($2,873,000)

FiniFX ($1,314,000)

Forward Forex (Shutdown!)

FX Option1 Inc (Shutdown!)

GFS Futures & Forex ($2,223,000)

Hamilton Williams ($1,202,000)

MB Trading ($3,952,000)

Money Garden ($3,627,000)

Nations Investments (Shutdown!)

One World Capital ($1,502,000)

Performance Capital International ($483,000)

Royal Forex Trading ($1,088,000)

SNC Investments ($1,510,000)

Solid Gold Financial ($2,039,000)

Spencer Financial (Shutdown!)

Trend Commodities (Shutdown!)

United Global Markets (Shutdown!)

Worldwide Clearing (Shutdown!)

Wall Street Derivatives ($936,000)

Unregulated Firms (Buyer Beware)

GCI (?)

Cletus' Fishing & Forex (?)

So there you have it. A total of NINE licensed forex dealer members have recently been closed by the NFA. Anyone still doubt this new $5 million cap requirement rule will be passed soon? I didn't think so. Certainly more closures await the dead forex firms walking in the days ahead. Hopefully you won't have money in one of them when they go under. In any case, I'll be here to report all the gory details.

Do you think that we are more safe to invest with any regulated FCMs even some of them are shut down by NFA because none clients lose any money? However, unregulated firms will be more danger.

 

NFA Dead Forex Firms Walking - Version 2.0

It's been close to two months since I started reporting on Dead Forex Firms Walking. Since my first post much has changed and the list is in need of an update. So here it is, Introducing:

NFA Dead Forex Firms Walking, version 2.0: (Adjusted Net Capital as of May, 2007, direct from the CFTC: http://www.cftc.gov/files/tm/fcm/tmfcmdata0705.xls)

Advanced Markets ($1,021,000)

American National Trading Corp ($1,985,000)

Bacera Corporation (Shutdown!)

Cal Finanical Corporation (Shutdown!)

Direct Forex ($1,406,000)

E FX Options ($2,631,000)

Forex Club ($2,873,000)

FiniFX ($1,314,000)

Forward Forex (Shutdown!)

FX Option1 Inc (Shutdown!)

GFS Futures & Forex ($2,223,000)

Hamilton Williams ($1,202,000)

MB Trading ($3,952,000)

Money Garden ($3,627,000)

Nations Investments (Shutdown!)

One World Capital ($1,502,000)

Performance Capital International ($483,000)

Royal Forex Trading ($1,088,000)

SNC Investments ($1,510,000)

Solid Gold Financial ($2,039,000)

Spencer Financial (Shutdown!)

Trend Commodities (Shutdown!)

United Global Markets (Shutdown!)

Worldwide Clearing (Shutdown!)

Wall Street Derivatives ($936,000)

Unregulated Firms (Buyer Beware)

GCI (?)

Cletus' Fishing & Forex (?)

So there you have it. A total of NINE licensed forex dealer members have recently been closed by the NFA. Anyone still doubt this new $5 million cap requirement rule will be passed soon? I didn't think so. Certainly more closures await the dead forex firms walking in the days ahead. Hopefully you won't have money in one of them when they go under. In any case, I'll be here to report all the gory details.

 

Dead Firms Walking

One World Capital ($1,105,000)

Velocity4X ($1,587,000)

Direct Forex LLC ($1,523,000)

FiniFX ($1,464,000)

Forex Club ($3,304,000)

GFS Futures & Forex ($3,074,000)

Nations Investments ($1,699,000)

Royal Forex Trading ($1,102,000)

SNC Investments ($1,565,000)

MB Futures ($3,080,000)

Money Garden ($3,399,844)

United Global Markets (Bankrupt)

Nothing in the info you provided shows that UGMFX is bankrupt. They clearly did not meet the minimum capital standard, but that is a far cry from being bankrupt.

Where did you get the idea they are bankrupt?

 
 
 

MG Comments on Capital Requirement

Money Garden has gone public with a statement about the proposed capital requirement rule over at Forex News:

Forexnews.com

Unfortunately, the response was rather underwhelming and for the most part brushed off the severity of the current capitalization problem in the industry. Of course, being poorly capitalized according to CFTC reports, that's exactly the kind of answer one would expect from MG. But to their credit they have indicated they will be upping their reported capital on the next CFTC report so let's wait and see what the next report has in store for them.

However, their initial response to the proposal indicates a firm that doesn't quite get what has been going on in the industry these past few years. MG states they are "not opposed to increased Net Capital Requirements..." That's not exactly a ringing endorsement for the proposal. MG then focuses in on accounting standards, which everyone agrees need to be tightened up. Indeed, I wholeheartedly agree with this MG statement, "From reading the second part of the NFA proposal on internal controls, it is alarming to learn that there are firms out there which lack any of the requirements that NFA is only now going to enforce."

But I find the following statement to be wholly revealing of MG's ignorance of the issue, "Sound business practices and internal controls are the decisive factors that are much more important than an increased net capital." Wrong. As the NFA has demonstrated sound business practices and internal controls are often directly related to net capital. Firms that are not well capitalized are far more likely to cut corners and not implement proper internal controls. That is the lesson from the demise of such firms as CFG. I find MG's obtuseness to these kinds of examples to be very disturbing.

All in all MG's statement is a dodge. Unlike I Trade FX, Gain Capital, Interbank FX and others there is no recognition of the seriousness of the capitalization problem the industry is currently facing. Certainly there are other issues that need to be addressed (in particular dealing practices which MG touched upon in their interview.) But none are more serious than capitalization. As such, MG's statement is a big disappointment.

 

Crunching the Numbers

One of the more interesting comments made about the proposed capital requirement was made by Todd Crosland of Interbank FX who said, "The NFA has proposed to raise the minimum net capital requirement to $5 million. If you offer greater than 100:1 leverage, you would have to maintain two times that amount, or $10 million." It's a point I have not stressed enough.

The minimum initial capital requirement is not the only capital requirement that firms have to make. There are other requirements as well and when they are added together they can quickly total $10 million. Let's do the math:

Should the proposal pass the following requirements will have to be met:

1) Minimum Initial Capital Requirement: $5 million

2) Requirement that firms offering 100:1 leverage set aside 10% of customer assets in additional capital. Assuming a firm has $30 million in customer assets: $3 million

3) CFTC concentration charges on outstanding open positions which can range from 6 to 20% of total net exposure. Assume a firm has $50 million in net exposure then 6% of 50 million would be: $3 million

As you can see when you add up all the various capital requirements most firms will need in excess of $10 million to be compliant. These cold, hard numbers are staring many of the poorly capitalized squarely in the face and no amount of spin can make them go away.

 
forexsavior:
One of the more interesting comments made about the proposed capital requirement was made by Todd Crosland of Interbank FX who said, "The NFA has proposed to raise the minimum net capital requirement to $5 million. If you offer greater than 100:1 leverage, you would have to maintain two times that amount, or $10 million." It's a point I have not stressed enough...

I need to check this and made my own maths because I don't trust in yours.

It has no sense.

Where is the link to the new proposed rules in nfa website? I can't find them.

 

Switzerland's Swiss Cheese Regulation

For all the problems that exist in the U.S. domestic retail forex market they still pale in comparison to the problems that exist in the unregulated retail forex market. And it is here on the periphery of the respectable forex world that a whole host of firms operate outside any kind of regulatory scrutiny providing their customers with scant funds protection or any means to conduct any form of due diligence. In short, these firms are the damned of retail fx and woe be to the trader who opens an account with one of them since they are merely playing a game of Russian Roulette.

In the last few years firms have set up shop in unregulated locales all over the world from the Cayman Islands to Cyprus. From the British Virgin Islands to the Philippines to Belize. Yet no part of the world has attracted more unregulated forex broker dealers than has Switzerland.

Ah, Switzerland. Land of fine watches, exhilarating ski slopes and tasty chocolate. Renowned for its banking prowess and for being a pillar of international finance. On the face of it seems like Switzerland would be an ideal place to open a forex business since the Swiss of all people should be very knowledgeable about this most complicated of financial instruments. But that facade is easily torn away once you do some further digging and discover that the vast majority of Swiss forex broker dealers are not in the least bit regulated and for the most part are completely ignored by the Swiss Regulatory Establishment.

"But I go to the websites of these Swiss brokers and see all sorts of regulatory Acronyms referenced. What is that all about?"

Good question Smithers. You see, while Switzerland is well known for being a haven for high finance they are also well known for being a haven for drug kingpins, terrorists, Ex-Nazis on the run, deposed third world dictators, former Refco/Enron Executives and other money launderers and money swindlers as well. So to counter the problem the Swiss government requires any firm that holds customer assets belong to a self-regulatory body which requires member firms to obey certain anti-money laundering guidelines. There are a whole host of these organizations from OAR-G to Polyreg and ARIF. Membership in these associations does not mean the association is checking in on how the firm runs it forex business. Nor can one go to any of these organizations to ask for background information on their member firm. And if the firm goes bankrupt these associations could care less about helping you get your money back. In short, these anti-money laundering organizations are useless to the average forex trader. Listing membership in such an organization is in my opinion patently offensive since membership in that organization is of no benefit to traders.

There is one government body however that does regulate forex trading in Switzerland: The Swiss Federal Banking Commission. True, they regulate banks but they also offer licenses to Securities Dealers as well. Synthesis Bank has just such a license. You can also verify that license by going to the SFBC's website directly: SFBC - Swiss Federal Banking Commission

Yet the majority of Swiss forex brokers are not licensed by the SFBC because as the SFBC states on its own website (SFBC - Frequently asked questions) "Foreign Exchange dealers, provided that they exclusively deal in foreign exchange, are not subject to supervision by the SFBC." That lack of "supervision" is on full display right now in the case of Tradex Swiss AG (Tradex Swiss AG).

Tradex Swiss AG

Earlier this year the NFA barred Tradex from soliciting clients in the United States due to the fact they were not properly registered (BASIC Details). As a side note the head of the Boston office of Tradex, Craig Karlis, is apparently trying to move on to bigger and better things. Several times this year Karlis tried to register a new firm by the name FX Nation Inc only to withdraw the FCM application with the NFA (BASIC Details.) The latest withdrawal being as recently as July 30, 2007. Considering people can't even get money out of the last firm he was involved with you would think Karlis would know when to call it quits. Talk about churn em and burn em.

Anyway getting back to the main actor, Tradex Swiss AG. It appears that Swiss authorities shut them down. Although since Tradex has been very tight lipped it is hard to tell what is going on: Handelsregister des Kantons Schwyz

But the bulletin boards have been flooded with angry customers (Tradex Swiss AG) who can't get their money out. And Tradex is not exactly going out of their way to provide their own traders with any information. One click on their website and all you get is this very disturbing message:

Dear Tradex Swiss AG Clients

Due to technical reasons, we wish to inform you that for the time being, we cannot accept any new account opening requests, or receive payments on existing accounts. For the same reason we also request all clients to close any open positions on their accounts, and to refrain from trading until further notice. We apologise for any inconvenience caused, and we expect to restore all operations in the near future.

Some inconvenience! Such is the peril of investing with an unregulated Swiss Broker. When things go wrong you are completely in the dark with no one to turn to. One day you are trading with such a firm, the next you go to the website and it is kaput while your funds are lost in purgatory.

The lesson? Avoid unregulated Swiss Brokers. The following Swiss brokers, like Tradex Swiss Ag, are not regulated:

WestCapFX

ACM

MIG

DukasCopy

GFX Group (Forex.CH)

Crown Forex

Forget the fancy sales pitches. Forget the Acronyms of the anti-money laundering organizations they belong to. Forget the spreads or the rolls or the foreign currency bank accounts they have. Ask them a simple question: Are you regulated and if you are please provide me with your registration number and a link where I can go and independently verify that you are indeed regulated. Absent that stay far, far away from Swiss Forex Broker Dealers. It just isn't worth the risk.