Page 42 of the current issue of Currency Trader Magazine (Free Subscription) has an article about the new NFA proposal. It reports on exactly what I have been saying these last few weeks. (
Currency Trader Magazine -- July 2007)
Here are some key quotes from the article:
“The NFA wants to raise capital requirements for registered Forex Dealer Members (FDM) to $5 million, plus it wants improved accounting standards.”
“The proposal could potentially wipe out 90 percent of existing forex brokerages, although it’s likely major consolidation would occur if the rule passes.”
“Since 2000, the NFA has authorized Forex Dealing licenses to more than 50 firms. However, many of these firms went out of business because they were undercapitalized, and fraud continues to be a problem in the forex brokerage arena.”
“The NFA estimates the new rules, combined with existing rules, will force firms to have at least $10 million in adjusted net capital to remain in business.”
“The NFA listed four specific reasons for the rule change:
1) Trading Spot Forex, which FDMs do, creates more risk than trading futures and options listed on an exchange.
2) Since spot forex is not a priority under the NFA’s Bankruptcy Code, it’s particularly important for FDMs to have adequate capital.
3) Two of the three bankruptcy proceedings in which the NFA has taken part in the past four years have involved smaller FDMS…
4) The Case of CFG Trader which was shut down by the NFA and forced to liquidate all open positions because it was undercapitalized.”
So this is the third independent media source to confirm what I have been saying.
Again, this doesn’t mean that all the firms in the Dead Pool are going under or that they are not currently meeting their requirements. But they are in a very precarious position. When the media is saying that the proposal
“could potentially wipe out 90% percent of existing forex brokerages” then traders should sit up and take notice.