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

Broker Discussion Forex Brokers
394

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!

395

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.

396

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.

397

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?

398

Short answer: yes

399

From what I have been reading at some Forex websites and in some magazines, the actual requirement will be a [B]minimum[/B] 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.

401

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�

402

…aka [B]“FIFO”[/B] is a common method for recording the value of inventory for accounting purposes…

403

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.

404

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.

405

Correct me if I’ve misunderstood, but as far as MT4 goes, “stop” orders are just another type of “pending” order… like “limit” orders are. I don’t think they mean you can’t put a stoploss on an order :confused:

406

i do not understand this please

407

This is quite disturbing news.

If true, I will likely pack my things and head off to the UK

408

Disturbing indeed. If things turn out to be so you guys can switch to forex.com, heres an email from them:

Dear Client:

We’re committed to providing you with the tools you need to execute your trading strategies. Beginning May 15, 2009, all MetaTrader accounts will be serviced by FOREX.com UK Ltd., which is authorized and regulated by the Financial Services Authority (FSA).

This change will allow us to continue to support all MetaTrader accounts, including those customers who currently use hedging as part of their trading strategy. As a FOREX.com UK customer, you will still benefit from the same level of stability and superior customer service you have come to expect.

The transfer of your account will be a seamless process. Within the next few days, you will receive another email with specific instructions regarding the account transfer process. In the meantime, please feel free to contact a forex representative with any additional questions or concerns.

Thank you in advance for your continued business.

Sincerely,
The Team at FOREX.com

409

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.

410

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.

411

Looks like some brokers are not waiting…just got this from IBFX:

Dear Customers:
Interbank FX, along with all FCM’s, has received information from the NFA that we want to pass along to our customers. All registered FCM’s have received a new Compliance Rule 2-43 regarding forex trading. On May 15, 2009, forex customers will no longer be allowed open “hedged” positions in their accounts. If you are currently using hedging as a trading strategy, we would encourage you to use the Interbank FX Demo accounts over the next month to help modify your trading strategy. Also, for those of you who utilize hedging strategy with your “Expert Advisors”, we would encourage you to modify your code and test your advisor on the Interbank FX Demo servers as well. In order to assure a smooth transition for our customers to the new NFA Compliance Rule, Interbank FX has set May 8, 2009 as the last date that customers will be able to hedge open positions.
For customers trading on the MetaTrader 3 platform:
Due to the fact the MetaTrader 3 platform is no longer supported by MetaQuotes and they do not have the available resources to make the MetaTrader 3 platform compliant with this new rule, Interbank FX has decided to move all MetaTrader 3 customers to the MetaTrader 4 trading platform. This action will take place after the market closes on May 8, 2009. This action will require that MetaTrader 3 platform users download the MetaTrader 4 trading platform from our website. Instructions will be provided in future notifications explaining how to log into your MetaTrader 4 trading account

412

"Thank you for your email. The thinkorswim platform has always followed the industry and now NFA and CFTC standard of first-in, first-out trade accounting . The NFA rule in no way prevents the use of limit orders or stop orders. This notice will not affect the way that thinkorswim processes or accounts for trades and you will continue to be able to make use of the award winning thinkdesktop long in to the future. If you are still concerned you can read the NFA press release at their site:

National Futures Association | News Center

I want to stress that thinkorswim was in compliance with this rule long before it was a rule there will be no changes to our order processing or order routing and all trades and order types will be available as before.

Thank you for your concern and please let us know if you need any further information or clarification."

Therefore, there’s no “hedging” allowed at ThinkOrSwim, but Stops, Limits, Trailstops, OCOs, and many other advanced order types are all unaffected.

413

Hey guys!
http://forums.babypips.com/rate-my-broker/22779-nfa-compliance-rule-2-43-b.html
Check this out:

"Notice I-09-12
May 05, 2009
Revised Effective Date for Portions of NFA Compliance Rule 2-43(b)

Notice I-09-10, issued on April 13, 2009, stated that new NFA Compliance Rule 2-43(b) would be effective for any positions established after May 15, 2009. Rule 2-43(b) prohibits Forex Dealer Members (FDMs) from carrying offsetting positions in a customer account and requires that they be offset on a first-in, first-out (FIFO) basis.

NFA has received several requests to extend the effective date due to the complexity of the programming changes required to comply with the FIFO requirement. After considering those requests, NFA has decided to extend the effective date for the FIFO part of the rule until July 31, 2009. Therefore, FDMs may not carry offsetting positions in the same account if either of those positions was established after May 15, 2009, but FDMs may offset positions on some basis other than FIFO through July 31, 2009."

Any comments:
http://forums.babypips.com/rate-my-broker/22779-nfa-compliance-rule-2-43-b.html

414

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.