Broker net capital requirements --- still more changes may be coming

By now, you are familiar with the tightening of capital requirements for forex brokers, as proposed by the NFA and ordered by the CFTC. The final increase in the Net Capital Requirement for Forex Dealer Members (FDM’s) — the label the NFA and CFTC use for forex brokers — took effect on May 16, 2009, and basically requires that:

(1) all FDM’s have Adjusted Net Capital of at least $20 million, and

(2) the largest FDM’s (those holding customer funds in excess of $400 million) have Adjusted Net Capital equal to at least 5% of the amount of customer funds held.

[B]A proposal from the NFA to the CFTC, currently pending,[/B] would change the requirement in (2), above, to say that FDM’s holding more than $10 million in customer funds must have Adjusted Net Capital equal to [B]$20 million PLUS 5%[/B] of customer funds on deposit [B]in excess of $10 million[/B].

Furthermore, FDM’s which use straight-through-processing for ALL customer transactions would be exempt from this 5% rule.

The result of this provision is that a broker such as FXCM, which uses straight-through-processing on SOME transactions, and on SOME accounts, would remain subject to the $20 million PLUS 5% rule. But, a broker such as MB Trading, which uses straight-through-processing on ALL customer transactions, would be exempt from the 5% rule, no matter how much customer money they hold. The text of the NFA proposal sheds some light on the NFA’s assessment of the relative safety of STP brokers, versus deal-desk brokers.

Here’s a link to the NFA Proposal: http://www.nfa.futures.org/NFA-regulation/..\news\PDF\CFTC\FRSec11_IntNotc021909.pdf

Clint