We have found some inaccuracies in your Futures magazine article, “The Forex Story: Only The Strong Survive”, specifically in the section called “Who’s Got $20 Mil?”.
The sentence that reads “The CFTC has always had the right to set a minimum ‘Adjusted Net Capital’ (ANC) for forex dealers who, unlike futures brokers, do hold customer funds and thus expose customers to their own financial risk” is misleading. The Commodity Futures Modernization Act of 2000 required any firm that acts as the counterparty to retail forex trades to be an “otherwise regulated entity”, such as a bank, insurance company, broker-dealer or futures commission merchant (FCM). This resulted in a number of forex firms registering with the CFTC as FCMs even though they were not conducting exchange-traded futures business. However, because they were registered as FCMs, they were subject to an FCM’s minimum net capital requirement of $250,000. The only way the CFTC could have raised the minimum net capital requirement for forex firms was to raise the requirement for all FCMs, which they chose not to do. It was NFA, subject to CFTC approval, that raised the minimum net capital requirements for Forex Dealer Members to $1 million and subsequently to $5 million.
The next paragraph details the timetable by which firms must meet the new $20 million capital requirement. However, these are dates submitted by NFA to the CFTC as an amendment to NFA’s Financial Requirements. As yet, the CFTC has not approved the amendment. Although we anticipate that the CFTC will approve the amendment prior to the October 31 deadline for firms to have $10 million in adjusted net capital, we will not enforce the deadline if the Commission has not approved the amendment.
The third paragraph states that “companies whose platforms offer leverage of 100:1 or more will see their capitalization requirements double – meaning they need to be worth at least $40 million, and possibly much more…”. NFA Financial Requirements currently require Forex Dealer Members that do not wish to collect a security deposit from their customers to maintain twice their minimum net capital. This requirement was written when the net capital requirement was $250,000. Given the substantial increase in the capital requirements for these firms, NFA has proposed an amendment to its Financial Requirements lowering the requirement from 200% to 150%. We have submitted this proposal to the CFTC, but as yet have not received approval from the Commission.
— Larry Dykeman, National Futures Association