In May 2009, the CFTC implemented the last of four increases in the capitalization requirement for U.S.-domiciled forex brokers, increasing the minimum capitalization from $15 million to $20 million.
The CFTC’s latest monthly report on broker financials, titled Selected FCM Financial Data as of November 30, 2009, was released a few days ago, and shows (among other things) the Adjusted Net Capital reported by the brokers to the CFTC.
I thought it would be useful to look at the relative strength of the U.S. brokers, six months after the end of regulatory tightening of the capitalization requirement.
The table below compares the current reported capitalization to the capitalization as of May 31, 2009, for 24 U.S. brokers. The grouping of brokers into 3 categories is explained in the Notes which follow the table.
The column headed % Change shows the change in Adjusted Net Capital for each broker over the six-month period May 31 - November 30, 2009. Among the 17 independent retail fx brokers, the big gainers were MB Trading and Rosenthal Collins, each posting an increase in Adj. Net Cap. of more than 11%; and the big losers were Capital Market Services and Gain Capital Group, each posting declines in Adj. Net Cap. of more than 19%.
For the 6 subsidiary brokers and the 2 banks listed in the table, changes in Adj. Net Cap. are less meaningful, for reasons explained in the Notes. However, it is interesting to note that one of the 600-pound gorillas of retail forex — Citigroup (parent of CitiFX) — became an 800-pound gorilla over the 6-month period, increasing their Adj. Net Cap. by a staggering $2.75 BILLION (up more than 41%).
The top 10 independent brokers of 6 months ago are still the top 10, but 2 of them have moved up one rung: Rosenthal Collins has edged out FXCM for the #5 spot, and Interbank FX has overtaken Peregrine for the #8 spot. I have not shown rankings for the subsidiary brokers, or for the banks, for reasons explained in the Notes; but, I have listed them in order according to current Adjusted Net Capital.
NOTES:
(1) Brokers indicated with an asterisk (*) handle retail forex ONLY. Other listed brokers handle other securities in addition to retail forex, including one or more of the following: institutional forex trading, commodity futures, equities, and/or commercial banking.
(2) The CFTC report, Selected FCM Financial Data, is the source for the figures shown above. Here are links to the 5/31/09 and 11/30/09 reports:
[ul]
[li]May 2009 - http://www.cftc.gov/ucm/groups/public/@financialdataforfcms/documents/file/fcmdata0509.pdf
[/li]
[li]Nov 2009 - http://www.cftc.gov/ucm/groups/public/@financialdataforfcms/documents/file/fcmdata1109.pdf
[/li][/ul]
These reports list financial data for commodity futures brokers, certain futures clearing firms, institutional forex brokers, and retail forex brokers — all in one alphabetical listing.
I have pulled the U.S. retail forex brokers from these reports and listed them in the table, above. All of the retail forex brokers listed (except Deutsche Bank) are considered to be domiciled in the U.S., and are regulated by the CFTC and by the NFA (or other industry self-regulatory authority). See note (6) for details on Deutsche Bank.
Foreign brokers, not regulated by the CFTC and not appearing in this table, include: Saxo Bank (Denmark), ACM (Switzerland), Dukascopy (Switzerland), NordMarkets (Sweden), and others.
(3) Regarding Adjusted Net Capital figures: In each case, these numbers represent the broker’s own funds AND the funds of all their customers, combined in one total. Unlike commodity futures brokers and stock brokers, U.S. forex brokers are NOT required to segregate customer funds. This should (and probably will) change in the future. In the meantime, there is no way to tell from the figures in the CFTC report how much customer money each broker has on deposit.
(4) INDEPENDENT RETAIL FX BROKERS (the first 17 brokers listed above) are NOT subsidiaries of larger firms, and DO NOT rely on the capitalization of a parent firm to meet regulatory requirements.
These independent FX brokers (if they deal in forex only) must meet the CFTC Net Capital Requirement of $20 million.
Independent FX brokers which also deal in commodity futures, or other securities, must meet higher capital requirements.
In the table, these independent FX brokers are ranked numerically according to Adjusted Net Capital. Subsidiary brokers and banks (see below) are not ranked.
(5) SUBSIDIARY RETAIL FX BROKERS (the next 6 brokers listed above) are subsidiaries of parent firms, and rely on those parent firms to meet CFTC Net Capital Requirements. These brokers must have Net Capital of $500,000 in addition to the capital of their parent firms. Subsidiary relationships are as follows:
[ul]
[li]Hotspot FXR LLC - now operates independently as an institutional forex broker only; Hotspot’s retail forex business has been acquired by FXCM
[/li]
[li]MG Financial LLC - subsidiary of Rosenthal Collins Group LLC (Chicago)
[/li]
[li]GFS Forex & Futures Inc - subsidiary of City Credit Capital Ltd (UK)
[/li]
[li]I Trade FX LLC - subsidiary of FXCM
[/li]
[li]ODL Securities (US) Inc - acquired by FXCM; all U.S. operations of ODL have ceased
[/li]
[li]ACM USA LLC - subsidiary of Advanced Currency Markets SA (Switzerland)
[/li][/ul]
(6) Two banks (Citigroup and Deutsche Bank), operating as retail FX brokers, are listed separately from the rest of the brokers, because their very large capitalization, as banks, cannot be readily compared to the capitalization of non-bank brokers.
Deutsche Bank is included in this table as a special case. Deutsche Bank’s various securities activities are regulated by the CFTC and by several other U.S. regulatory agencies; however, this regulation does not include the retail forex business of dbFX, a Deutsche Bank subsidiary.
dbFX is domiciled in the United Kingdom, and is regulated by the British Financial Services Authority.
Deutsche Bank is included in this table only for comparison to its competitor, Citigroup. It is interesting to note that, while Deutsche Bank handles more foreign currency transaction volume than any other bank in the interbank network, it is nevertheless considerably smaller overall than its competitor, Citigroup.
(7) For a list of more than 340 forex brokers worldwide, see: Forex Broker Guide | Forex Broker | Forex | Online Forex Broker