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

[WhipSawFX]

Well well, whats even more interesting is that forexscholars location is just

Moderator: It's appropriate this thread be ended with "badass's" comment but it shouldn't dissuade members from reading the rest of the thread because I think it has been highly instructive. It's interesting that badass's IP address is only 12 miles West of Forexscholar's which is only 5.4 miles West of FXCM's Manhattan offices. Like badass, I'm sure the inner circle at FXCM wishes this fear campaign (whoever started it) hadn't gotten as much attention as it has.

[WhipSawFX]

NFA Forex Dealer Dead Pool - The NDD Forum - Savvy Traders Want to Know

Moderator: It has been determined that the source of this post may well have come from a one of the dealing desk brokers shown as one of so-called "Healthy Forex Firms" on the list below. Be sure to take the time to read the related discussion before you jump to any conclusions. It interesting to note that Forexscholar disappeared from the scene when it was pointed out that his motivations were suspect and that the identical post appearing below has been published by the same individual on numerous forex forums.

[forex savior]

Originally Posted by WhipSawFX

from :

OANDA FXMessage: NFA Forex Dealer Dead Pool

For those that are unaware this thread is being posted at the same time on every forum Im aware of, using the alias's forexfigure, forexscholar, forexsavior...

What's up with you WhipSaw? You taking the same steroids as Barry Bonds? Like others who cannot effectively rebut my arguments you instead resort to smearing the messenger. It didn't work before, it won't work now.

[forex savior]

A few months ago the NFA filed a complaint against One World Forex that stated among other things, "One World lacked an understanding of, or was inattentive to, regulatory requirements and was ill prepared to accept customer business as either an FDM or an FCM. The firm had not established adequate systems to enable it to handle customer funds or comply with customer reporting requirements."
BASIC Case Summary

Well, with each passing day One World appears to be vindicating the NFA’s assessment as they continue their death spiral downward. The last few weeks I have been flooded with tips about One World Forex. No other firm in the Dead Pool has generated more feedback. And all that feedback has been overwhelmingly negative. But I have been holding back waiting for a clearer picture to emerge. However, this thread at an obscure bulletin board has provided me with the Smoking Gun on One World:
GoldenMoneyTree.com :: View topic - 1world-forex.com

First my sources combined with the users on this thread indicate that One World is having severe problems with customer transfers/withdrawals. The reason why is unclear. It could be due to One World’s changing bank accounts from Citi to Bank of America. Or it could be that One World’s books are such a shambles that we may have another CFG on our hands. There is no way to tell right now. However this customer of One World said the following:

“Day 21: Still haven't granted my redemption request. I am so angry now that I don't know if I should still expect to get my money. Last week Jack Walsh said they are having problems or that they still cannot accomplish international wires and blamed it on bank of america. They said hopefully they could do it within the next 40 minutes but until today, it still hasn't been deducted from my account. I don't know why they singled me out to do this to me. Is it because I'm far away and won't sue them because it would be more expensive than my $18,950 that I'm trying to withdraw? I called the NFA and the guy I spoke to states that it is no guarantee that I would get my money back, he says it depends on the agreement with one world that I signed. Well, there's an expensive lesson for not reading the fine print. In my country $18,950 is roughly 900,000 pesos. And that wasn't my entire account with them, I still have $2,756 that I don't know if they'll give back to me. It's my entire savings since I was a child. Although it won't hurt my lifestyle since I still live at home, IT SURE HURTS!
Am I just supposed to sit back and lose my money? I thought I was safe with an american nfa registered broker. The guy from the NFA said he would send a team over to one world but again, he says, there is no guarantee. He said I could file a complaint or he could send me an arbitration kit. This is so sad news for me, and a sad realization. Suddenly, my dreams of having time freedom and doing this full time comes shattering. How do I really know which broker to trust? Will I ever get my savings back?

Day 22: My boyfriend called one world again. They said to wait until next week because they are having management problems and that almost all accounts are under review and that my account is one of those under review. I'm guessing that next week, they'll tell me to wait until next month, and then until next year...I wonder what went wrong and wonder if this is finally the truth. the NFA hasn't gotten back to me yet.

Other traders have sent me private messages confirming the rough shape One World is in. The word on the street is that the situation at One World has become so dire that a large chunk of their sales force resigned because they hadn’t been paid for two months. Other traders are reporting non-responsive customer service, emails that go unanswered and phones that keep on ringing. All the signs of a firm in its last death throes…

The bottom line is when you can’t return a customer’s money when they ask for it you are finished in this business. One World may be able to limp on indefinitely but it is hard to see this firm making a comeback to respectability. Barring a fat sugar daddy willing to pump in ten million dollars this firm’s days appear to be numbered.

[WhipSawFX]

Originally Posted by forex savior

What's up with you WhipSaw? You taking the same steroids as Barry Bonds? Like others who cannot effectively rebut my arguments you instead resort to smearing the messenger. It didn't work before, it won't work now.

Smear campaign, you've got that wrong. I've just posted quotes to interesting material I found on other forums which you have posted the exact same preprepared material on. Aparently trying to smear the smaller firms with the false suggestions / allegations that they are close to insolvency/bankruptcy.

Steroids ? Well, its funny you should say that because you sure are putting a lot of effort into your smear campaign against all the small forex companies.

I have made some very good points with reference to Refco on the OANDA forum. The net capital requirements wouldnt have helped in the case of the only significant bankruptcie to hit the forex market in its entire history, so how is tightening the net capital requirements going to help it now ... Thats right, its not, its simply going to move funds to the bigger operators who infact are more likely to be hit by insolvency if Refco is anything to go by.

In anycase, I also raised another important point by pointing out your posting the same material on every available forum:

Whats your motivation or payoff for your 'smear' campaign against the smaller firms all over the internet ?

Are you paid to do this ?

Why have you never posted before under these identities on these forums ?

You have made a number of mistakes, in your posts where you suggest that these smaller firms are going bankrupt. Case in point, particularly being "I TRADE FX" - Your first post stated that they were close to bankruptcy with a -$3M net capital, now they have +$4M net capital. Your posts have no doubt cost them business, when they are clearly experiencing dynamic growth.

I also pointed out on the OANDA forum that the Net capital requirements have historically been very dynamic, with OANDA's number fluctuating by over $30M over the past year. When they are clearly not in any way concievable having any problems. I'll put the post from OANDA in the next post of mine here.

[WhipSawFX]

From :
OANDA FXMessage: NFA Forex Dealer Dead Pool

Originally posted by forexfigure:

thank you for pointing out the article whipsaw. It is excellent. However I would argue regulated firms are certainly safer than unregulated firms. RefcoFX was not regulated. And neither are these Swiss firms. And that is an added level of risk traders should be very wary of.

no doubt regulation can be a hindrance if implemented in a haphazard manner. But overall if the industry wants to mature like futures and equities it needs rules and regulations and a fair arbiter to ensure its healthy growth.

Its irrelevant whether RefcoFX was regulated or not, as it wasn't RefcoFX which went bankrupt, but Refco which was a regulated organisation infact here's a post I did on the increase in the net capital before Refco went belly up :

OANDA FXMessage: OANDA lost half capital? -- Serious

net capital / req / excess
434,396,953 149,538,068 284,858,885 OCT 31 2005
443,361,067 324,470,436 118,890,631 SEP
376,425,713 239,244,825 137,180,888 AUG
380,089,511 183,889,783 196,199,728 JUL
337,758,112 188,122,845 149,635,267 JUN
354,518,630 186,819,750 167,698,880 MAY
323,842,068 196,599,538 127,242,530 APR
342,308,408 184,949,611 157,358,797 MAR
283,860,286 171,702,919 112,157,367 FEB
286,674,439 156,901,955 129,772,484 JAN

Refco went under in a similar fashion as worldcom, bad accountants and shuffling debt. In the case of Refco it was a bad receivable, money which was due to Refco from clients adversely affected by the Asian financial crisis of the late 1990's.

Here's a nice article from bloomberg :

Bloomberg.com: News & Commentary

Its the principal risk for most firms you put your money with in my opinion, and what ever your doing your money's at risk, unless its segregated.

In anycase, I would agree that a firm which is regulated, and is in constant compliance, and is proactively so like OANDA is a good company to place your money. But, not to the exclusion of all others. I think due dilligence is the most important thing to do when you are investing money with any firm.

The net capital requirement is something that these firms will adapt to rather than go out of business. And for that matter its not an issue of bankruptcy but, not being solvent enough to do buisness as deamed by the CFTC. If they can't meet the requirements they consolidate with the larger firms.

There had been concern about OANDA's net capital which fell most of last year, and reached a low of $11M last december. it has risen as high as $42M this year, and appears to be quite a dynamic number. Here are some of the threads :

OANDA FXMessage: Another large drop in Oanda's Capital...

OANDA FXMessage: OANDA's financial health

OANDA FXMessage: CFTC OANDA FIgure Dropped again

However, as I have posted in the other threads, OANDA's platform, business model, quality of client customer service, innovation, and their progressive developement of their platform and tools demonstrates their financial health whatever was going on with the 'net capital'.

Michael Stumm has made a couple of posts on the forum about this very matter :

OANDA FXMessage: OANDA lost half capital? -- Serious

Originally posted by Michael Stumm:
Unfortunately, it is not a warning sign. This is an issue that comes up periodically. For example, please see OANDA FXMessage: Another large drop in Oanda's Capital...

The situation is the same now as it was then: the CFTC requires us to deduct amounts from OANDA's capital that depend on our clients' positions. In some cases, we are required to deduct 20% of individual client nominal position size (the so-called "concentration charge"), which can cause large swings in the reported Net Capital. I can assure you that OANDA is continuing to operate profitably with positive earnings each month for several years now without exception, and as a result, OANDA's own capital has been only increasing, the Net Capital numbers published notwithstanding.

OANDA FXMessage: CFTC OANDA FIgure Dropped again

Originally posted by Michael Stumm:
For what it is worth, I just posted this: OANDA FXMessage: OANDA lost half capital? -- Serious on another thread with the same topic.

The bottom line:

OANDA is profitable each month and has been for years.
as a result, OANDA's own capital has only been increasing.
the Net Capital published on the CFTC Web site is equal to OANDA's own capital minus various haircuts and charges. The concentration charge, in particular, requires us to deduct in some cases 20% of nominal client position sizes, which can cause huge swings in the published Net Capial

This is reminiscent of the variation seen at "I TRADE FX" which you listed as -$3M and close to bankruptcy, and now has $4m Net capital ...

http://www.cftc.gov/files/tm/fcm/tmfcmdata0706.pdf

I TRADE FX LLC N NFA 06/30/2007 3,957,357 1,000,000 2,957,357 0 0

Thats an $8M turnaround in a couple of months, similar to that of OANDA. I think this thread, should be recalled NFA forex Dealer consolidation, cause thats all its about.
If the firms can't maintain these levels of net capital they will have to move clients to the larger firms, which all in all is not good for the average guy on the street. Since there is
less competition, and innovation and the posibility of spreading your funds around to protect from potential Refco's is greatly reduced. It would seem to me there is a big potential Refco in that list of healthy firms of yours, which this whole thread seems to promote and are the very companies which your funds are most at risk with. I so think the quote of Richard Olsen and Michael Stumm I posted earlier is to the point :

If anything, regulatory action is working to limit inflows of new ideas and processes and the always necessary increased efficiencies.

I would strongly agree and think this degree and type of regulation is probably more unhealthy for the forex market. The major bankruptcy to affect a forex broker was Refco, who I mentioned before had nothing to do with the net capital requirements. Infact, the net capital requirements would suggest Refco would be the place to trade. What is the new net capital Requirements going to have on the OANDA's of the future, or is the future your big 2 or 3 firms.

[forex savior]

Originally Posted by WhipSawFX

I have made some very good points with reference to Refco on the OANDA forum. The net capital requirements wouldnt have helped in the case of the only significant bankruptcie to hit the forex market in its entire history, so how is tightening the net capital requirements going to help it now ... Thats right, its not, its simply going to move funds to the bigger operators who infact are more likely to be hit by insolvency if Refco is anything to go by.

I also pointed out on the OANDA forum that the Net capital requirements have historically been very dynamic, with OANDA's number fluctuating by over $30M over the past year. When they are clearly not in any way concievable having any problems.

Well looks like I have made a new friend. Let me correct you on a couple points.

1) RefcoFX was not regulated. Refco LLC was regulated and the customers got their money back. Regulation matters. That's why the customers of RefcoFX in Hong Kong and Canada also got their money back. The Refco case is very complicated and since you don't know too much about it I suggest you not use them to "build your case" since you don't know too much about it.

2) The issue is not "dynamic capital numbers" the issue is firms that don't have enough money to properly run a forex operation. The NFA is saying they don't believe firms under $5 million are properly equipped to do so. Thus they want to raise the requirement. The record, as I have shown on this thread, backs their assertion up.

[forex savior]

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. 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.

[WhipSawFX]

Originally Posted by WhipSawFX

In anycase, I also raised another important point by pointing out your posting the same material on every available forum:

Whats your motivation or payoff for your 'smear' campaign against the smaller firms all over the internet ?

Are you paid to do this ?

Why have you never posted before under these identities on these forums ?

nice sidestep, but answer the questions

[forex savior]

Update on Swiss Regulation

It appears that the winds of change are blowing in Switzerland according to FX Street:
Forex Street Weblog: Wind of important changes in Switzerland

Hi Everybody

As you may probably already know, SFBC (Swiss Federal Banking Commission) is decided to regulate the Foreign Exchange business in Switzerland . This process already started a couple of months ago and some important brokerages are already going through the process of getting SFBC’s approval.

One of my sources in Switzerland told me this morning that SFBC is implementing big changes in the way Swiss brokers use to work...

The restrictions that SFBC will require to brokers to implement to get their approval will probably force those not strong enough to disappear and this process could be faster than we think and could take place before the end of the year.

I’ll keep you posted about all this very interesting process.
Under my point of view, the fact that SFBC puts order in the Swiss Foreign Exchange business should be considered as a very good news for all the community, but we must remain alert over the whole process.
Francesc

So it could be that by the end of the year Switzerland will have instituted forex regulation at the retail level and the industry will not have to suffer any more Tradex Swiss AG style shenanigans.