Many forum users have been asking for a specific link to the National Futures Association website so that they can read the proposal for themselves and hear it from the regulators themselves. Well, here it is:
http://www.nfa.futures.org/news/newsRuleSubLetter.asp?ArticleID=1942
As you can see the National Futures Association has spelled out clearly why they wish to raise the minimum capital requirement to $5 million. They apparently mailed out the formal proposal to the CFTC by Federal Express on August 17, 2007. So it looks like the NFA has fully signed off on the proposal. Now all that is required is the CFTC's approval.
I would strongly encourage everyone to read through the NFA's reasoning for increasing the minimum capital requirement at this link here:
http://www.nfa.futures.org/news/newsProposedRule.asp?ArticleID=1941
Everyone will have their own quotes they will highlight. Here are the ones I found most interesting:
"NFA received sixteen comments regarding the proposal. Eight commenters supported the increased capital requirement and eight opposed it."
"The comment letters that opposed the proposal noted that it will likely eliminate a number of the smaller FDMs. These smaller FDMs will be, obviously, those with less capital. The comment letters in opposition also noted that more capital does not necessarily mean that an FDM is better able to support and properly operate its forex activities. While more capital does not necessarily correlate to "better" FDMs, more capital does mean that they will have, at a minimum, a greater financial stake in running their forex businesses."
"One comment letter also noted that an FDM's risk-management and operational internal controls are more important than the amount of capital an FDM has. NFA agrees that an FDM's internal controls are important and, under separate cover, NFA is submitting for Commission approval a new rule to ensure that FDMs have proper internal controls."
"Several FDMs pointed to the recent MRAs and receivership proceedings as evidence that the current regulations are working. Regulating solely by enforcement proceedings is not the best way to protect customers, however. One of these FDMs claims that staff was unfair in its characterization of the problem with FDMs and forex. Specifically, this FDM pointed out that the number of bankruptcies involving traditional FCMs and FDMs is the same, with two of each.5 What this FDM does not recognize, however, is that the two traditional FCM bankruptcies occurred over a seventeen-year history of regulation, while those for FDMs has occurred in only a little more than seven years. Moreover, the traditional FCM population has average around 250 while the FDM population has averaged around 40."
All those critics who've been saying how "alarmist and irresponsible" my postings are now owe me an apology. The NFA itself is saying that the smaller firms opposed to the measure were telling the NFA the proposal could possibly eliminate themselves! That's right, some of the smaller firms in the Dead Pool we're telling regulators "you know this proposal could put us out of business." Yet when I say the same thing to the trading public the call goes out I'm "scare mongering." I'd love to know which firms opposed the rule and why they did. Wouldn't it be amusing to know which firms are right now telling their customers "nothing to worry about this rule won't have any effect on us" while they are pleading with regulators "please don't pass this or we could be forced to go out of business!"
In any case the NFA has apparently brushed aside the dissenters. They have officially put the rule on the table and all it will now take is the CFTC's signature. Apologies will be accepted in the order they are received
