thanks for all your help Jeff. I'm glad that Talkgold has such diligent forum moderators. When I try to reach other moderators at other boards its like spitting in the wind...
Unfortunately, the response was rather underwhelming and for the most part brushed off the severity of the current capitalization problem in the industry. Of course, being poorly capitalized according to CFTC reports, that's exactly the kind of answer one would expect from MG. But to their credit they have indicated they will be upping their reported capital on the next CFTC report so let's wait and see what the next report has in store for them.
However, their initial response to the proposal indicates a firm that doesn't quite get what has been going on in the industry these past few years. MG states they are "not opposed to increased Net Capital Requirements..." That's not exactly a ringing endorsement for the proposal. MG then focuses in on accounting standards, which everyone agrees need to be tightened up. Indeed, I wholeheartedly agree with this MG statement, "From reading the second part of the NFA proposal on internal controls, it is alarming to learn that there are firms out there which lack any of the requirements that NFA is only now going to enforce."
But I find the following statement to be wholly revealing of MG's ignorance of the issue, "Sound business practices and internal controls are the decisive factors that are much more important than an increased net capital." Wrong. As the NFA has demonstrated sound business practices and internal controls are often directly related to net capital. Firms that are not well capitalized are far more likely to cut corners and not implement proper internal controls. That is the lesson from the demise of such firms as CFG. I find MG's obtuseness to these kinds of examples to be very disturbing.
All in all MG's statement is a dodge. Unlike I Trade FX, Gain Capital, Interbank FX and others there is no recognition of the seriousness of the capitalization problem the industry is currently facing. Certainly there are other issues that need to be addressed (in particular dealing practices which MG touched upon in their interview.) But none are more serious than capitalization. As such, MG's statement is a big disappointment.
One of the more interesting comments made about the proposed capital requirement was made by Todd Crosland of Interbank FX who said, "The NFA has proposed to raise the minimum net capital requirement to $5 million. If you offer greater than 100:1 leverage, you would have to maintain two times that amount, or $10 million." It's a point I have not stressed enough.
The minimum initial capital requirement is not the only capital requirement that firms have to make. There are other requirements as well and when they are added together they can quickly total $10 million. Let's do the math:
Should the proposal pass the following requirements will have to be met:
1) Minimum Initial Capital Requirement: $5 million
2) Requirement that firms offering 100:1 leverage set aside 10% of customer assets in additional capital. Assuming a firm has $30 million in customer assets: $3 million
3) CFTC concentration charges on outstanding open positions which can range from 6 to 20% of total net exposure. Assume a firm has $50 million in net exposure then 6% of 50 million would be: $3 million
As you can see when you add up all the various capital requirements most firms will need in excess of $10 million to be compliant. These cold, hard numbers are staring many of the poorly capitalized squarely in the face and no amount of spin can make them go away.
For what little it's worth, I used to use forexnews a lot. Not too much anymore. Several reasons. And, you've touched on a couple of reasons that I chose interbankfx, besides just the ability to trade pennies, rather than dollars...
Appreciate the info, and especially the commentary.
Just my opinion,
Jeff
__________________
Life is not measured by the number of breaths you take, but by the moments that take your breath away.
For all the problems that exist in the U.S. domestic retail forex market they still pale in comparison to the problems that exist in the unregulated retail forex market. And it is here on the periphery of the respectable forex world that a whole host of firms operate outside any kind of regulatory scrutiny providing their customers with scant funds protection or any means to conduct any form of due diligence. In short, these firms are the damned of retail fx and woe be to the trader who opens an account with one of them since they are merely playing a game of Russian Roulette.
In the last few years firms have set up shop in unregulated locales all over the world from the Cayman Islands to Cyprus. From the British Virgin Islands to the Philippines to Belize. Yet no part of the world has attracted more unregulated forex broker dealers than has Switzerland.
Ah, Switzerland. Land of fine watches, exhilarating ski slopes and tasty chocolate. Renowned for its banking prowess and for being a pillar of international finance. On the face of it seems like Switzerland would be an ideal place to open a forex business since the Swiss of all people should be very knowledgeable about this most complicated of financial instruments. But that facade is easily torn away once you do some further digging and discover that the vast majority of Swiss forex broker dealers are not in the least bit regulated and for the most part are completely ignored by the Swiss Regulatory Establishment.
"But I go to the websites of these Swiss brokers and see all sorts of regulatory Acronyms referenced. What is that all about?"
Good question Smithers. You see, while Switzerland is well known for being a haven for high finance they are also well known for being a haven for drug kingpins, terrorists, Ex-Nazis on the run, deposed third world dictators, former Refco/Enron Executives and other money launderers and money swindlers as well. So to counter the problem the Swiss government requires any firm that holds customer assets belong to a self-regulatory body which requires member firms to obey certain anti-money laundering guidelines. There are a whole host of these organizations from OAR-G to Polyreg and ARIF. Membership in these associations does not mean the association is checking in on how the firm runs it forex business. Nor can one go to any of these organizations to ask for background information on their member firm. And if the firm goes bankrupt these associations could care less about helping you get your money back. In short, these anti-money laundering organizations are useless to the average forex trader. Listing membership in such an organization is in my opinion patently offensive since membership in that organization is of no benefit to traders.
There is one government body however that does regulate forex trading in Switzerland: The Swiss Federal Banking Commission. True, they regulate banks but they also offer licenses to Securities Dealers as well. Synthesis Bank has just such a license. You can also verify that license by going to the SFBC's website directly: http://www.ebk.ch/e/index.html
Yet the majority of Swiss forex brokers are not licensed by the SFBC because as the SFBC states on its own website (http://www.ebk.ch/e/faq/faq1.html) "Foreign Exchange dealers, provided that they exclusively deal in foreign exchange, are not subject to supervision by the SFBC." That lack of "supervision" is on full display right now in the case of Tradex Swiss AG (http://www.tradexfx.com/).
Tradex Swiss AG
Earlier this year the NFA barred Tradex from soliciting clients in the United States due to the fact they were not properly registered (http://www.nfa.futures.org/BasicNet/...=0350721&rn=Y). As a side note the head of the Boston office of Tradex, Craig Karlis, is apparently trying to move on to bigger and better things. Several times this year Karlis tried to register a new firm by the name FX Nation Inc only to withdraw the FCM application with the NFA (http://www.nfa.futures.org/BasicNet/...tityid=0375959.) The latest withdrawal being as recently as July 30, 2007. Considering people can't even get money out of the last firm he was involved with you would think Karlis would know when to call it quits. Talk about churn em and burn em.
Anyway getting back to the main actor, Tradex Swiss AG. It appears that Swiss authorities shut them down. Although since Tradex has been very tight lipped it is hard to tell what is going on: http://www.hra.sz.ch/cgi-bin/fnrGet....0&shab=0000000
But the bulletin boards have been flooded with angry customers (http://www.forexfactory.com/showthread.php?t=10894) who can't get their money out. And Tradex is not exactly going out of their way to provide their own traders with any information. One click on their website and all you get is this very disturbing message:
Dear Tradex Swiss AG Clients
Due to technical reasons, we wish to inform you that for the time being, we cannot accept any new account opening requests, or receive payments on existing accounts. For the same reason we also request all clients to close any open positions on their accounts, and to refrain from trading until further notice. We apologise for any inconvenience caused, and we expect to restore all operations in the near future.
Some inconvenience! Such is the peril of investing with an unregulated Swiss Broker. When things go wrong you are completely in the dark with no one to turn to. One day you are trading with such a firm, the next you go to the website and it is kaput while your funds are lost in purgatory.
The lesson? Avoid unregulated Swiss Brokers. The following Swiss brokers, like Tradex Swiss Ag, are not regulated:
WestCapFX
ACM
MIG
DukasCopy
GFX Group (Forex.CH)
Crown Forex
Forget the fancy sales pitches. Forget the Acronyms of the anti-money laundering organizations they belong to. Forget the spreads or the rolls or the foreign currency bank accounts they have. Ask them a simple question: Are you regulated and if you are please provide me with your registration number and a link where I can go and independently verify that you are indeed regulated. Absent that stay far, far away from Swiss Forex Broker Dealers. It just isn't worth the risk.
A few months ago the NFA filed a complaint against One World Forex that stated among other things, "One World lacked an understanding of, or was inattentive to, regulatory requirements and was ill prepared to accept customer business as either an FDM or an FCM. The firm had not established adequate systems to enable it to handle customer funds or comply with customer reporting requirements." http://www.nfa.futures.org/basicnet/...17&contrib=NFA
Well, with each passing day One World appears to be vindicating the NFA’s assessment as they continue their death spiral downward. The last few weeks I have been flooded with tips about One World Forex. No other firm in the Dead Pool has generated more feedback. And all that feedback has been overwhelmingly negative. But I have been holding back waiting for a clearer picture to emerge. However, this thread at an obscure bulletin board has provided me with the Smoking Gun on One World: http://www.goldenmoneytree.com/forum...=asc&start=100
First my sources combined with the users on this thread indicate that One World is having severe problems with customer transfers/withdrawals. The reason why is unclear. It could be due to One World’s changing bank accounts from Citi to Bank of America. Or it could be that One World’s books are such a shambles that we may have another CFG on our hands. There is no way to tell right now. However this customer of One World said the following:
“Day 21: Still haven't granted my redemption request. I am so angry now that I don't know if I should still expect to get my money. Last week Jack Walsh said they are having problems or that they still cannot accomplish international wires and blamed it on bank of america. They said hopefully they could do it within the next 40 minutes but until today, it still hasn't been deducted from my account. I don't know why they singled me out to do this to me. Is it because I'm far away and won't sue them because it would be more expensive than my $18,950 that I'm trying to withdraw? I called the NFA and the guy I spoke to states that it is no guarantee that I would get my money back, he says it depends on the agreement with one world that I signed. Well, there's an expensive lesson for not reading the fine print. In my country $18,950 is roughly 900,000 pesos. And that wasn't my entire account with them, I still have $2,756 that I don't know if they'll give back to me. It's my entire savings since I was a child. Although it won't hurt my lifestyle since I still live at home, IT SURE HURTS!
Am I just supposed to sit back and lose my money? I thought I was safe with an american nfa registered broker. The guy from the NFA said he would send a team over to one world but again, he says, there is no guarantee. He said I could file a complaint or he could send me an arbitration kit. This is so sad news for me, and a sad realization. Suddenly, my dreams of having time freedom and doing this full time comes shattering. How do I really know which broker to trust? Will I ever get my savings back?
Day 22: My boyfriend called one world again. They said to wait until next week because they are having management problems and that almost all accounts are under review and that my account is one of those under review. I'm guessing that next week, they'll tell me to wait until next month, and then until next year...I wonder what went wrong and wonder if this is finally the truth. the NFA hasn't gotten back to me yet.
Other traders have sent me private messages confirming the rough shape One World is in. The word on the street is that the situation at One World has become so dire that a large chunk of their sales force resigned because they hadn’t been paid for two months. Other traders are reporting non-responsive customer service, emails that go unanswered and phones that keep on ringing. All the signs of a firm in its last death throes…
The bottom line is when you can’t return a customer’s money when they ask for it you are finished in this business. One World may be able to limp on indefinitely but it is hard to see this firm making a comeback to respectability. Barring a fat sugar daddy willing to pump in ten million dollars this firm’s days appear to be numbered.
Other traders have sent me private messages confirming the rough shape One World is in. The word on the street is that the situation at One World has become so dire that a large chunk of their sales force resigned because they hadn’t been paid for two months. Other traders are reporting non-responsive customer service, emails that go unanswered and phones that keep on ringing. All the signs of a firm in its last death throes…
The bottom line is when you can’t return a customer’s money when they ask for it you are finished in this business. One World may be able to limp on indefinitely but it is hard to see this firm making a comeback to respectability. Barring a fat sugar daddy willing to pump in ten million dollars this firm’s days appear to be numbered.[/quote]
I took my funds away from One World 2 months ago and had the funds in my acct the same day I faxed the request. A trader buddy faxed his request for his $7,500 last Monday and the money was in his bank Wednesday afternoon. Hoping this post might spread a bit of hope. We're both US based.
My biggest worry now is that our internet fx brokers are not involved in the sub-prime/credit derivative/credit crunch fiasco - with my/our funds!!
Either put your money in big NFA regulated brokers like FXCM,Oanda,etc or send your money to offshore brokers... My 2 cents.
I agree..Even if FXCM, FXSOL, IBFX, Oanda is not upto mark...they are the safe bet when you start to win...i would better open account with all major brokers and divide my trade on alternate days
As you may probably already know, SFBC (Swiss Federal Banking Commission) is decided to regulate the Foreign Exchange business in Switzerland . This process already started a couple of months ago and some important brokerages are already going through the process of getting SFBC’s approval.
One of my sources in Switzerland told me this morning that SFBC is implementing big changes in the way Swiss brokers use to work...
The restrictions that SFBC will require to brokers to implement to get their approval will probably force those not strong enough to disappear and this process could be faster than we think and could take place before the end of the year.
I’ll keep you posted about all this very interesting process.
Under my point of view, the fact that SFBC puts order in the Swiss Foreign Exchange business should be considered as a very good news for all the community, but we must remain alert over the whole process.
Francesc
So it could be that by the end of the year Switzerland will have instituted forex regulation at the retail level and the industry will not have to suffer any more Tradex Swiss AG style shenanigans.
Re: Proposed NFA capital requirements
Hybrid Mode
