NFA Forex Dealer Dead Pool

[forex scholar]

2007 was a year of change in the forex industry, most of it for the better as some of the seediest firms in the industry were shown the door thanks to the NFA’s capital requirement increase. But 2008 appears to be an even more momentous year of change for the U.S. forex industry. And those changes may not necessarily be for the better.

The Savior has long been an advocate of healthy capitalization in the industry. But the recent legislation set to pass in the Congress should be a cause for serious concern for all forex traders. The last few weeks I have received numerous emails and done some research through helpful links provided on the bulletin boards and have come to the realization that this legislation is not good for the trading public.

Wha? I know, I know. The Savior has been preaching the virtues of high capitalization so in theory he should support increasing capitalization to $20 million right? And in fact at first I was sympathetic to this proposal. But the bottom line is the Savior is also a trader. And as a trader I am worried that by restricting this industry to just a handful of the larger players (FXCM, GFT, Gain, Oanda) that speads will once again widen. Take FXCM for example. Their spreads have been tightening for the past year in response to the increased competition taking place in the marketplace. But what happens if that competition gets eliminated altogether? How does this affect the average trader?

The $5 million rule needed to be put into place. There were too many tiny bucketshops doing serious damage to traders. Even now I still have my suspicions about tiny little outfits like AMIFX who are barely treading water even after the $5 million requirement.

Nevertheless, with the House already passing a law to require that all firms have a minimum $20 million on hand (and who knows what other capital requirements will be imposed upon the industry) the barrier to entry is getting sky high and few firms are going to be able to make the cut. My understanding is that the Senate has not approved the House’s language. So there may still be a chance to stop this law from passing.

Also it appears that introducing brokers are going to be wiped out entirely. There are a bunch of registration requirements that may very well strangle most introducing brokers and put them out of business.

I don’t think people realize just how perilous the situation is. This could all become law in a month’s time. Traders, brokers and medium sized dealers should call their Congressman right away. It seems Congress is only hearing from the regulators, not the general public. As a trader I want a healthy industry with stable, well capitalized firms. But I also want good service and tight spreads. Having only 6 firms in the industry is not going to guarantee either.

[forex scholar]

Should the Congress pass legislation requiring all firms have a minimum net capital requirement of $20 million the following firms will be in danger in the United States:

Advanced Markets $1.3 million
Alpari $6.4 million
Bacera $3.1 million
CMC $2.7 million
CMS $11.4 million
Easy Forex $7 million
Forex Club $4.8 million
Friedberg Mercantile $7.9 million
GFS Futures & Forex $3.6 million
Hotspot $6.1 million
IFX $17.1 million
Ikon $9.1 million
MB Trading $6.6 million
Money Garden $5.3 million
ODL $13 million
PFG $12.8 million

Now, many of these firms have additional capital they can infuse into their firms (particularly foreign firms like IFX and CMC as well as domestic ones like Hotspot.) But many do not. The customers of these firms should take notice, and if you want to keep trading with these firms, take action.

[forex scholar]

The CFTC has finally released the December 2007 net capital numbers. This is our first look at the forex industry after the increase in capital requirements to $5 million in the United States.

I'm amazed that firms like Advanced Markets and Bacera made the cut, although judging from their paltry capital numbers they are barely treading water. In light of the One World and FXLQ fiascos I would view those cap numbers with extreme skepticism. These are not safe firms in my opinion.

An interesting piece of data as well is the number InterbankFX is now reporting. Their cap number has dropped dramatically from $30 million to $19.2 million in one month. Often times cap increases and decreases can be written off as being part of the forex business cycle. But the fact is over that same period of time the FXLQ scandal ruptured and it turns out Interbank had some $10 million stashed away at FXLQ. Something to keep an eye on here people. http://www.robbevans.com/pdf/forexlqreport01.pdf

Here is the full run down of net capital per firm. Remember the Congress is close to passing a law which would require firms to have a minimum of $20 million to stay in business. Should it pass the industry may only have about a dozen firms left.

The Big Six (Above $20 Million)
1. Oanda $156 million
2. RJ O'Brien $92 million
3. FXCM $75 million
4. GFT $69 million
5. Gain Capital $50 million
6. I Trade FX $34 million

Below $20 Million
7. PFG $19.7 million
8. Interbank FX $19.2 million
9. FX Solutions $17.9 million
10. IFX $15.5 million
11. CMS $13.8 million
12. GFS Futures & Forex $10.2 million
13. CMC $8.7 million
14. Alpari $8 million
15. Ikon $7.9 million
16. Easy Forex $7.6 million
17. Friedberg Mercantile $7.5 million
18. Forex Club $7.4 million
19. MB Trading $7 million
20. ODL $6.9 million
21. Hotspot $6.1 million
22. Money Garden $6 million
23. Bacera $5.4 million
24. Advanced Markets $5.2 million

[forex scholar]

Been doing well trading recently so I haven't had much time to post (gotta love volatility!)

In any case the shysters are busy as ever out there so beware. Forex Fraud is happening all over the world. The trading public really needs to be careful about who they trade with. Again, I recommend sticking with firms that are regulated, have good track records and have a healthy capital number. Above all I STRONGLY recommend that you not trade with a firm that is unregulated.

All the crooks busted below were unregulated rogues (especially Zimbabwe's dictator Robert Mugabe. lol.) As a guide it should be noted the following firms are not regulated and as a customer you have no rights in a dispute or if the firm gets into trouble and goes bankrupt:

Unregulated Brokers
Finex
Tradex Swiss AG
ACM
WestCapFX
MIG
DukasCopy
GFX Group (Forex.CH)
Crown Forex
GCI
Northfinance
FXDD

NYC Man Sentenced in Forex Scam
NYC Man Sentenced in Forex Scam - AP - National Business News - Portfolio.com
Feb 15 2008 3:13PM EST

A New York man was sentenced to more than 12 years in prison Friday in connection with a foreign currency exchange scam that bilked more than 200 investors out of $6.5 million.

The U.S. Attorney's office in Manhattan said Boris Shuster, also known as "Robert Shuster," was sentenced to 150 months in prison at a hearing in U..S. District Court in Manhattan.

U.S. District Judge Victor Marrero also ordered Shuster to forfeit $7.89 million and pay a $10,000 fine.

Shuster,guiltyleaded guilty to conspiracy, 14 counts of wire fraud and 13 counts of mail fraud last June. Prosecutors had sought a sentence of 235 months to 293 months in prison, said Sarita Kedia, Shuster's lawyer.
"We do plan to appeal," Kedia said.

Shuster was previously sentenced to 60 months in prison after pleading guilty to criminal charges in a separate forex scam in federal court in Brooklyn. He had remained free pending his sentencing in federal court in Manhattan, Kedia said.

In the Manhattan case, prosecutors had alleged that Shuster and Alexander Dzedets operated a fraudulent forex firm named Holston, Young, Parker & Associates in Manhattan. Dzedets, 32, and nine others have pleaded guilty to criminal charges in the "boiler room" scheme, prosecutors said.

Employees of the firm allegedly used false and misleading sales pitches and high-pressure sales tactics to convince people to invest in its purported forex trading program, the government said.

Funds raised weren't used to invest in the forex market, but were instead diverted to bank accounts in Cyprus and Russia, prosecutors said.

NAB arrests forex fraud accused - DAWN NAB arrests forex fraud accused - DAWN Aaj TV News | Aaj News | Aaj TV | Aaj

The Punjab chapter of the National Accountability Bureau has arrested Kashif Iqbal, business partner of M/s SKAF International, Lahore, on charges of fraud, misappropriation and cheating public.

According to a NAB press release, M/s SKAF International was involved in illegal forex business in 2003. Kashif along with three business partners fraudulently induced public at large to invest their money on false promises of profit up to four per cent to five per cent per month. They cheated 68 people, obtained deposits from them and misappropriated an amount of Rs29.308 million.

A reference against the accused had already been filed with the accountability court in 2007. After arrest, Kashif was produced in the accountability court and sent to judicial lockup.

Forex Scam Haunts Mugabe
Forex scam haunts Mugabe : Mail & Guardian Online#

President Robert Mugabe’s fight against corruption is closing in on his closest confidants. The 82-year-old leader is in a quandary and is unwilling to pass a routine political directive for the arrest and prosecution of Zanu-PF officials allegedly involved in illegal foreign currency dealings.

Police insiders have said that no arrest or prosecution of a Cabinet minister or member of Zanu-PF’s Politburo takes place without Mugabe’s sanction. It is a political formality that the police and Attorney General adhere to, but Mugabe’s selective approach has irked some of his colleagues in Cabinet.
The police’s criminal investigations department investigated Mugabe’s close ally, retired General Solomon Mujuru, husband of Vice-President Joice Mujuru, for flouting exchange control regulations and running Mafia-type shelf companies.

These companies would buy and trade foreign currency on the black market with individuals and companies in which the government has an interest. Mujuru then made weekly transfers involving billions of Zim dollars (see “The docket”).

[hetfield]

Hi I am a newbie here in the forum ... by chance the FXOPEN is not regulated? I am operating forex with it right now.

https://forexbrazilian.cabinet.fxopen.com

[framestraight]

To All;

I received this from the NFA in January. This Quote from the NFA is about Brokers Trading AGAINST YOU. How do you think that relates to Capitalization? How do you think they got their Capitalization Money?
In other words the NFA is addressing Capitalization and not the underhanded tricks of Brokers. I guess it's OK for Brokers to trade against you. The word for this is LOOTING! Here's the notice and read carefully.



Notice to Members I-08-03
January 25, 2008

Effective Date of Amendments to the Interpretive Notice Regarding Forex Transactions

NFA has received notice that the Commodity Futures Trading Commission has approved amendments to the disclosure section of the Interpretive Notice entitled "Forex Transactions." The amendments will become effective on June 1, 2008.

The amendments require prescribed disclosure language that makes clear to customers that a Forex Dealer Member ("FDM") is acting as a counterparty in forex transactions and may profit from the market moving against the customer. The amendments require the disclosure to be prominently displayed in uppercase letters in at least 10 point size type and to be separately acknowledged by the customer. The amendments also give NFA staff the authority to approve alternative language in certain circumstances.

FDMs do not need to obtain an acknowledgment from existing customers or persons who become customers prior to June 1, 2008. FDMs must, however, provide the disclosure to those retail customers in a manner designed to ensure that they actually receive it. For example, merely including the disclosure on the firm's web site is not adequate, but sending customers an e-mail with the disclosure would be sufficient in most circumstances.

A copy of the relevant section with amendments marked is attached for your convenience. Additionally, NFA's November 29, 2007, submission letter to the CFTC contains a more detailed explanation of the changes. You can access an electronic copy of the submission letter at National Futures Association | News Center.

Questions concerning these changes should be directed to Sharon Pendleton, Director, Compliance (spendleton@nfa.futures.org or 312-781-1401) or Michael A. Piracci, Senior Attorney (mpiracci@nfa.futures.org or 312-781-1419).

FOREX TRANSACTIONS

* * *

B. COMPLIANCE RULE 2-36

* * *

1. Disclosure - Members must provide retail forex customers with understandable and timely disclosure on essential features of forex trading

* * *

At or before the time a customer first engages in a forex transaction, a Member and its Associates should disclose how the Member will be compensated for the services it will provide to the customer.

Additionally, a Forex Dealer Member must describe to the customer the nature of these foreign currency transactions. Therefore, a Forex Dealer Member must provide, and the customer must separately acknowledge receipt of, either the following disclosure language or other appropriate language (based upon the Forex Dealer Member's business model) approved by NFA staff, which must be prominently displayed in all uppercase letters and in 10 point size type or larger but in any event no smaller than any surrounding type:

THE FOREIGN CURRENCY TRADING YOU ARE ENTERING INTO IS NOT CONDUCTED ON AN EXCHANGE. [MEMBER] IS ACTING AS A COUNTER PARTY IN THESE TRANSACTIONS AND, THEREFORE, ACTS AS THE BUYER WHEN YOU SELL AND THE SELLER WHEN YOU BUY. AS A RESULT, [MEMBER]'S INTERESTS MAY BE IN CONFLICT WITH YOURS. UNLESS OTHERWISE SPECIFIED IN YOUR WRITTEN AGREEMENT OR OTHER WRITTEN DOCUMENTS [MEMBER] ESTABLISHES THE PRICES AT WHICH IT OFFERS TO TRADE WITH YOU. THE PRICES [MEMBER] OFFERS MIGHT NOT BE THE BEST PRICES AVAILABLE AND [MEMBER] MAY OFFER DIFFERENT PRICES TO DIFFERENT CUSTOMERS.

IF [MEMBER] ELECTS NOT TO COVER ITS OWN TRADING EXPOSURE, THEN YOU SHOULD BE AWARE THAT [MEMBER] MAY MAKE MORE MONEY IF THE MARKET GOES AGAINST YOU. ADDITIONALLY, SINCE [MEMBER] ACTS AS THE BUYER OR SELLER IN THE TRANSACTION, YOU SHOULD CAREFULLY EVALUATE ANY TRADE RECOMMENDATIONS YOU RECEIVE FROM [MEMBER] OR ANY OF ITS SOLICITORS.

Key Word in this notice is COUNTER PARTY.

[forex scholar]

Originally Posted by hetfield

Hi I am a newbie here in the forum ... by chance the FXOPEN is not regulated? I am operating forex with it right now.

https://forexbrazilian.cabinet.fxopen.com

STAY AWAY FROM FX OPEN. They are NOT regulated. Your money is at serious risk.

[forex scholar]

And with the Congress set to raise minimum capital requirements for forex dealers to $20 million these numbers are once again taking on greater significance.

Above $20 Million
Oanda $157 Million
RJ O'Brien $91 million
FXCM $82 million
GFT Forex $76 million
Gain Capital $50 million
I Trade FX $33 million
Interbank FX $23 million

Below $20 Million
PFG $18.6 million
FX Solutions $17.3 million
CMS $13.3 million
ODL $11.9 million
GFS Forex $10.4
IFX $9.3 million
CMC $8.7 million
Alpari $8 million
Ikon $7.9 million
Easy Forex $7.7 million
Hotspot $7.7 million
MB Trading $7.6 million
Friedberg Mercantile $7.5 million
Forex Club $7.4 million
Money Garden $6.3 million
Bacera $5.3 million
Advanced Markets $5.2 million

Financial Data for FCMs

[scorpion]

Thanks for due diligence.

[forex scholar]

I have been hearing a lot about FXDD and people have been asking me about their regulatory status. So what's the scoop?

FX Direct Dealer is a New York City based broker located in Manhattan . FXDD used to be affiliated with Tradition Securities. However, today Tradition only owns a small percentage of the firm. Thus FXDD is in no position to claim Tradition as a parent company for regulatory purposes.
So aren’t they then required to register according to the law? Not according to FXDD. Here is a response I got from a customer service rep over at FXDD when I asked them this question on their chat:

Forex Inquiries: FXDD began as a subsidiary of Tradition North America within the Tradition Group of companies. (CFT - Compagnie Financière Tradition). FXDD's management, operation, compliance, customer relations and its financial policies and procedures were structured to meet the Tradition Group's oversight and those policies and procedures remain firmly in place. Our managers have deep experience in the foreign exchange markets and we conduct our business as highly qualified professionals. As yet, the OTC spot forex market in the United States is not subject to regulation by the SEC or the CFTC. FXDD is not a member of any private self regulatory organization such as the FINRA or the NFA and is not registered with either the CFTC or the SEC. Congress is considering legislation that will require all forex dealers to register, probably with the CFTC and join NFA as it is the only recognized private futures regulatory authority. So,as the regulatory environment for spot foreign exchange changes, FXDD will keep its options open and, if congress passes new legislation, FXDD will register with the designated oversight agencies. Having said that, FXDD manages its business in conformity with well established dealing protocols and the customs and practices of the foreign exchange dealing community. FXDD has thousands of clients who have chosen us as their dealing firm because of the manner in which we conduct our business and because of our historic association with the Tradition Group. We maintain extensive dealing lines with the top global banks and have never had any issues relating to the protection of customer assets or the manner in which we handle our client accounts.

Uh, someone should let FXDD Know that OTC spot forex IS regulated in the United States and they ARE subject to regulation by the CFTC.

I have put the question to FXDD by email but have yet to get a response. Customers need to be aware that this firm is swimming in some very murky regulatory waters. The CFTC could crash through FXDD’s door at any moment and demand the firm shut down their business because they are not regulated. Every retail forex dealer in the United States has accepted the CFTC as their regulator but FXDD is claiming they have no jurisdiction?

This firm in my opinion is a very risky place to put your money. Buyer Beware.