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

Big news people. The national futures association is going to shut down any firm that does not have at least $5 million in capital if the proposed capital requirement rule passes. This could get ugly folks. Is your firm big enough to make the cut? Most firms are poorly capitalized.

The rule should be decided in August. Make sure your funds are safe.

I don’t see any reports on the CFTC website on any broker shutdowns. Can you please provide a link to the report?? thanks :slight_smile:

This is a proposal from the National Futures Association (See Below) which the CFTC is expected to sign off on shortly. Already today one firm is filing for bankruptcy due to its inability to make its capital requirements (the CEO of United Global Markets LLC sent an email to all its clients saying it was going out of business.) After reading this notice it is easy to see why they are closing up shop.

[B]Minimum Adjusted Net Capital and Concentration Charges [/B]

        In the past twenty years, there have been nine FCM insolvencies. Since 1990, there have been only two insolvencies by traditional FCMs trading on U.S. exchanges, and no funds in segregated customer accounts were lost in either of those two instances. This is from a population that averages around 250 (over the last 20 years). Even in the Refco matter, the FCM filed for bankruptcy not because customer funds were at risk but, rather, to facilitate the sale of its assets and the transfer of its accounts in connection with the parent company�s insolvency.

  The FCM insolvency rate becomes more troubling when FDMs are added to the mix. Of the three bankruptcy or receivership proceedings for insolvency occurring in the last four years, two have involved FDMs (Refco was the third), and they are drawn from the smaller FDM population (averaging around 40). Specifically, in late 2003, an FDM misappropriated almost $2 million of customer funds, which depleted the amount of assets necessary to meet the amounts owed to customers. The Commodity Futures Trading Commission ("CFTC") is still working to try to get back some of the customers� funds. More recently, NFA took a Member Responsibility Action ("MRA") against an FDM whose liabilities exceeded its assets by over $1 million. The CFTC also brought an emergency action in U.S. District Court, and the Court immediately appointed a receiver who was subsequently able to sell the FDM�s customer accounts. Due to this sale, it appears that the customers were made whole.

        This discrepancy between FDMs and FCMs involved in on-exchange transactions is even greater when looking at the number of financial MRAs NFA has issued in the last ten years. During that period, NFA issued twelve MRAs to FCMs for failing to demonstrate compliance with NFA�s financial requirements. Three of these firms were traditional FCMs with an on-exchange business, one was a forex dealer registered as an FCM prior to the advent of the FDM category, and the remaining eight were FDMs.

        NFA's concern that one day an FDM might be unable to meet its financial obligations to its customers has heightened as the amount of retail customer funds held by FDMs has increased to over $1 billion. The above described FDM insolvencies have done nothing to abate this concern, particularly with the most recent occurring just months after the $1 million capital requirement became effective. If the receiver had not sold the FDM's accounts, then twice within less than four years customers of FDMs would have lost funds due to an FCM insolvency. Additionally, since March, eight different FDMs have fallen under the early warning requirement of $1.5 million.

        One of the reasons for the 2006 increase to the FDM capital requirements was that an FDM�s dealer activities create greater financial risks than the agency transactions involved in traditional exchange-traded futures and options. A second reason is that the need for adequate capital is particularly acute for FDMs since customers trading off-exchange forex have not received a priority under the Bankruptcy Code in the event of a firm�s insolvency. Both of these reasons still exist. 

        NFA is not alone in recognizing the increased financial risk of acting as a dealer. Congress recognized that acting as a dealer increases financial risk and requires substantially higher capital on the part of the dealer. Pursuant to Section 4c(d)(2)(A) of the Commodity Exchange Act (the "Act") the grantor of a dealer option must maintain at all times a net worth of $5 million. The Commission has likewise recognized the increased financial risk resulting from being a dealer, imposing an adjusted net capital requirement of $2.5 million on leverage transaction merchants ("LTMs").1 

        When the Commission adopted the financial requirements for LTMs in 1984, it noted that the leverage market is "essentially a principals' market" and that the "purchaser of a leverage contract is solely dependent on the LTM for performance on the contract."2 This is the exact same situation that customers are in when they purchase or sell currencies with an FDM. Further, as with an LTM, an FDM "takes the other side of every [contract] entered into by a [customer]" and the FDM "is the sole guarantor of performance on the [contract]." When trading with an FDM "there is no clearing organization to take the other side of every trade, no FCM guaranty of variation margin to the clearing organization and no clearing organization guaranty fund and assessment power."3 Due to these factors, the financial requirements for FDMs, like LTMs, must be substantially higher than those for FCMs engaging in agency transactions.

        As noted above, the Commission imposed the $2.5 million capital requirement for LTMs in 1984. Based upon the Consumer Price Index, $2.5 million in 1984 dollars would be worth approximately $5 million today. Accordingly, NFA is proposing to raise the minimum adjusted net capital for FDMs to $5 million. An increased capital requirement would result in an FDM having a larger buffer to meet its obligations to its customers. Additionally, an increase in capital requirements for FDMs would ensure that FDMs have a larger financial stake in their forex business.

got this news from that Felix guy too
it is a good news, isn’t?
then only few remains … :smiley:

is it good or bad then :confused:, how to find out abt your broker

The news about the NFA shaking up the forex industry by dramatically raising capital requirements has kicked off a lot of speculation. So I gathered everything I have learned about this new NFA proposal and am posting here for your review. As someone who has been burned by a bankrupted forex broker I can tell you it is not a pleasant feeling to watch your funds get sucked into some black hole. So my advice is to stay away from any firm that is not currently meeting the coming $5 million capital requirement. And if you already have money at such a firm, get it out, [U][B]now[/B][/U]. If you don’t, you could end up like the poor souls at United Global Markets (UGMFX) who can’t get their money out due to an NFA account freeze: UGM - United Global Markets GOING DOWN @ Forex Factory

[U][B]Who has the Money & Who Doesn’t[/B][/U]
To find out how much money your broker has goto this link:

[B]Healthy Forex Firms[/B]
FXCM ($51,000,000)
GFT ($48,000,000)
Oanda ($44,000,000)
FX Solutions ($20,000,000)
Gain Capital ($20,000,000)
CMS ($10,000,000)

[B]Dead Firms Walking[/B]
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)
Advanced Markets ($1,020,000)
MB Futures ($3,080,000)
Money Garden ($3,399,844)

The CFTC is expected to sign off on it this summer. I’ll comment further on the proposal in a future posting as it will actually require most firms to have upwards of $10 million in capital when you take into consideration such things as open customer positions and margin levels. In any case, this should be sober reading to anyone who is currently trading at one of the “Dead Firms Walking.”

In the nature of disclosure, you should say who you work for before you say “They’re about to be shutdown” or that they’re in bad standing. Otherwise, you’re pointing at a snapshot and saying that’s “proof”.

Several of the companies you listed as in trouble have larger parent companies or no capitalization issues in more recent information (which can be confirmed with the CFTC by contacting them).

I’m not saying you’re wrong, but some of your statements straddle the line of “incorrect” and “outright misleading”.

None of the firms listed in the “dead firms walking” have larger parent companies. These firms are all undercapitalized taking into consideration the coming $5 million capital requirement. That is a fact. Traders need to know the risks of trading with these firms, as most of them don’t have much of a future ahead of them. The fact is, if these firms had the money they would have already listed it in their capital reports. But they don’t have the money.

For those traders who aren’t bothered by this fact so be it. But I think it important they at least know the incredible risks they take in opening an account with any of these firms.

I appreciate the post FS. When i choose a broker for real i will be reviewing this list.

so is the net capital required, or adjusted net capital :confused:. bcoz i got little confused, i was looking at fx solution data


could anyone find fxdd on that report? i think fxdd’s parent company is named tradition, but i didnt see that either…

I don’t know what to tell you other than you are wrong on 2 of the companies. This can be verified with the NFA. The problem is you are disparaging those companies and their business might be damaged when they’ve done nothing wrong.

All I ask is that people here verify before accepting a random person on forums (and yes, that includes me as well as forex savior). Don’t just take this report at face value, esp since the capitalization thing is a maybe.

scary stuff for those with accounts at the smaller firms - this will probably be a good thing for the industry though in the long run

ForexSavior has been posting about this on too. Same posts. For a BALANCED view of all this, go there and check out what others have to say, instead of a spread of panic which seems to be what is happening here. Yes it’s important to know, but all the information should be on the table before decisions are made, and it seems a bit tasteless to ‘call out’ “good” and “bad” brokers.

I am not wrong about any of these companies. Please point out which companies are poorly capitalized? This information is from the CFTC. It’s the public record.

I realize that some people are upset that I pointed this out. Better to keep all this secret right so that people don’t know what is going on in the industry? For those traders who are concerned about whether or not their firm is financially risky ask yourself this question. In August of 2005 when everything at Refco was fine if you knew the firm was going out of business shortly thereafter and you had an account with them would you have kept your money there anyway and taken a “wait and see attitude?” Of course not. You’d have grabbed your money and ran. That’s just plain common sense.

Well this is very concerning, but I see at least one and possibly two omissions in the firms you�ve listed, regarding your assessment. Before I say what that is, I’d like to know how you’ve arrived at the notion that these firms will be shut down if they don’t make the proposed capital requirement. Certainly there would be some kind of date that would be published in order for them to “true-up”. This seems very “x-files” to me. Further, even if such a requirement was issued by the NFA, and the CFTC “signs off” would they even have the authority to “shut down” a U.S business without supporting laws and due process? That seems very unlikely. Please fill me in on how you see the actual closing of the many firms listed (which currently have excess capital, but less than 5m) taking place.

Also I do need to ask, do you work for any of the firms you’ve listed as likely to survive? I know when FXCM was trying to trash a broker I told them I was considering, they were all about their net assets. This sounds like a very similar argument. If not, my apologies in advance, but this seem a little fishy.

I am new to trading. I have read through this thread and I’m amazed at how many firms have already gone out of business. I don’t know who I will open my live account with but I can’t imagine opening one with a firm with just a million bucks stashed away under the mattress. Boy people will really give their money to just about anyone these days…

Well, it looks like the forex dead pool is about to claim its first two victims. Read it and weep.

[B]The NFA has issued serious complaints against two small, undercapitalized firms. [/B]

The first is Advanced Markets (Amifx). The NFA says in its complaint, �On June 28, 2007, NFA issued a Complaint charging AMI with cheating, defrauding or deceiving another person or attempting to do so and failure to observe high standards of commercial honor and just and equitable principles of trade. The Complaint also charged AMI with failure to maintain required adjusted net capital; failure to take required charges; failure to collect and maintain required security deposits; failure to file accurate weekly reports; and failure to maintain accurate records.�

What is even more frightening is that Amifx has only $1,020,000 in capital. Could this be ANOTHER UGMFX?

The second is against Bacera Corporation (whoever they are?) But just like UGMFX Bacera looks like they got no money left. On June 28, 2007, NFA issued a Complaint charging Bacera with failure to give required notice; failure to maintain required adjusted net capital; failure to take required charges; and failure to maintain accurate records. The Complaint also charged Bacera with cheating, defrauding or deceiving another person or attempting to do so and failure to observe high standards of commercial honor and just and equitable principles of trade. Finally, the Complaint charged Bacera, Wong, Hsu and Valdivia with failure to supervise.

It seems like these smaller firms are going under on a weekly basis. I’ll keep everyone posted as the dead forex firms walking continue to die off…

WHO you work for clickr12???:wink: