Are Your Funds Safe? NFA to Shut down small forex fcms

[forex savior]

Disturbing news out of, where else; Switzerland, that the police have raided the offices of Swiss forex broker ACM for possible fraud. You’ll remember ACM fled the U.S. after they failed to come up with enough capital to stay in business. They are trying to get a banking license in Switzerland but to date only have an application pending with Swiss authorities. That application just got a lot more complicated.

Francesc at FX Street has been linking to several articles in the Swiss Press which details the investigation:
Francesc’s Weblog » Police raid ACM Geneva office in a suspected financial fraud case

The main article appeared in Swisster:
Swiss Business in English: Police raid Geneva forex firm in fraud probe

A squad of 28 police officers raided the downtown Geneva offices of currency trading company ACM and seized documents, a computer and other evidence in a suspected financial fraud case. Swisster discovers the unprecedented affair, being directed by an inspector and detective for the cantonal force’s financial fraud brigade, may take weeks to unravel and has involved the questioning of top officials from the company, who are refusing to comment.

28 police officers?! Sounds like the raid that took place at the end of the movie Boiler Room where a swarm of agents falls upon Vin Diesel and company.

In addition, senior officials were questioned by police, although Pulh said no-one has been arrested. A company employee told Swisster that a trader and four of the company’s senior management, including Nicholas Bang, deputy general manager and one of ACM’s founders, were contacted at their homes early Thursday and taken in for questioning.

“We are being told that it has to do with a client from two years ago based in Mexico who had lost a lot of money from the company,” the informant said. “The client was looking for documents to see if there was any misappropriation.”

ACM has countered that this mysterious Mexican plaintiff is just making it all up:
Francesc’s Weblog » ACM Update 1 - ACM feels being victim to former client malicious intent

On Thursday the 2nd of April, on the basis of counterfeit documents produced by a former client, the authorities in Geneva visited ACM’s offices.

Collaborating in a transparent and active way, ACM delivered all information required.
All elements prove ACM’s good faith and it remains clear that the company has fallen victim to a former client bent on malicious intent.

In return, ACM has lodged a complaint against this former client with accusations of blackmail, defamation and forgery of documents.

Another newspaper article that Francesc links to then goes on to explain that the Mexican plaintiff was tipped off by an ex-ACM employee about some bad pricing or something from the summer of 2008. ACM insists this rogue employee gave the Mexicans false statements which the plaintiff then used to blackmail ACM?

Francesc’s Weblog » ACM Update 2 - Probes used in the accusation of fraud to be falsified according to ACM

What a mess. Not sure who to believe here. But I can’t imagine that 28 police officers would storm a business, seize computers and files, and interrogate management- all on the hearsay of one disgruntled foreigner.

Stay tuned, we may have another Crown Forex on our hands.

I’ve said it before, I’ll say it again, do not trade with a Swiss broker UNLESS they have a banking license!

[forex savior]

The CFTC has just released their latest net capital figures. For the most part it is the same as last month’s report.

http://www.cftc.gov/marketreports/f...rfcms/index.htm

The following firms have net capital below $20 million

Easy Forex $15,267,000
MB Trading $15,449,000
GFS Forex $16,008,000
Ikkon Royal $16,310,000
I Trade FX $16,811,000
Alpari $19,563,000
Advanced Markets $19,779,000

The following firms have net capital above $20 million

Forex Club $21,536,000
PFG $26,053,000
CMS Forex $29,132,000
Interbank FX $37,816,000
FX Solutions $49,298,000
GFT Forex $84,505,000
FXCM $101,546,000
Gain Capital $105,049,000
Oanda $169,205,000

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 going into effect in the months ahead.

[forex savior]

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 forex@nfa.futures.org. 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.

[twk5r]

All - trying to understand the impact of the new captial requirements. Does this mean that all of the firms with net capital below $20 million will stop operating?

Originally Posted by forex savior

The CFTC has just released their latest net capital figures. For the most part it is the same as last month’s report.

http://www.cftc.gov/marketreports/f...rfcms/index.htm

The following firms have net capital below $20 million

Easy Forex $15,267,000
MB Trading $15,449,000
GFS Forex $16,008,000
Ikkon Royal $16,310,000
I Trade FX $16,811,000
Alpari $19,563,000
Advanced Markets $19,779,000

The following firms have net capital above $20 million

Forex Club $21,536,000
PFG $26,053,000
CMS Forex $29,132,000
Interbank FX $37,816,000
FX Solutions $49,298,000
GFT Forex $84,505,000
FXCM $101,546,000
Gain Capital $105,049,000
Oanda $169,205,000

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 going into effect in the months ahead.

[o990l6mh]

Short answer: yes

[BrianSNJ]

From what I have been reading at some Forex websites and in some magazines, the actual requirement will be a minimum of $20 Mill with a need for excess as a cushion.

Most experts on the subject are saying $30 Mill is going to be the 'real' requirement necessary to operate long term.

[forex savior]

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…

[Sweet Pip]

Originally Posted by forex savior

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


“First in, First out” is not a concept that comes into play all that often in forex trading.

...aka "FIFO" is a common method for recording the value of inventory for accounting purposes....

[dobro]

I wonder if brokers can skirt the hedging ban by offering a "One Cancels the Other" style trade; a trader sets up a Buy Stop and a Sell Stop (aka a straddle) and then when one is hit the other is cancelled. Not in the spirit of the new regulation but perhaps legal? d.

[forex savior]

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.