NFA goes after forex brokers who downgraded their RFED license – asks to increase the capital back to $20m

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It seems NFA is not even satisfied with some brokers downgrading their license to FCM from RFED and now goes after them anyway. Downgrading from RFED to FCM meant brokers like Forex Club could no longer accept retail clients (those not considered ECPs) and therefore didn’t have to freeze over $20m in own capital. This freed $19m which could be used elsewhere. The latest brokers to downgrade were Easy Forex back in 2010, Forex Club and Advanced Markets in 2012.

NFA also dropped another bomb disclosing that one more forex broker is on the way to downgrading its license “In addition to these three FCMs, one other current FDM has recently informed NFA that it is in the process of winding down its retail forex business, and plans to only act as counterparty to forex transactions with ECPs.”

We couldn’t identify this broker however we are aware of at least 3 brokers trying to unsuccessfully sell their books in the past few months.

NFA however just issued a proposal (which usually means automatic acceptance) to the CFTC asking to require these FCMs to increase the capital back to $20m as it claims, using highly sophisticated legal language, that “it makes absolutely no sense that an FDM that acts as counterparty to a single retail forex transaction must maintain at least $20 million in adjusted net capital; however, an FCM that engages in an identical type transaction with an ECP must only maintain at least $1 million in capital.”

On the way NFA also points out that some of these FCMs may deal with shady businesses “One firm’s ECP forex counterparties include a Hong Kong based bullion investment company, a jewelry company in the United Arab Emirates, an investment company based in Lebanon, and three foreign retail forex affiliates of the FCM.”

Of course one of the ways to legitimize this proposal was to refer to CME who’s arguably driving the OTC forex business out of the US anyway: “NFA staff confirmed with CME Group staff that none of the FCMs for which it is the DSRO have less than $20 million in adjusted net capital if they engage in forex activities with ECPs.”

The result of this move will surely be the complete withdrawal of Forex Club and Easy Forex from the American market and Advanced Markets keeping the $19m it planned on using elsewhere frozen. In longer term more US brokers (not that many are now left) will simply relocate elsewhere or leave the business altogether (NFA marks mission accomplished).







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7 Comments on this post

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  1. Stephen Leahy said:

    Interesting to note that there are no comments under this NFA story (other than this comment). This is a significant move by the NFA, yet no one who regularly reads Forex Magnates cared to comment. Goes to show that the US continues to be less and less significant to the Margin Trading Products industry.

    November 24th, 2012 at 1:33 pm
  2. Michael Greenberg said:

    i think US brokers simply gave up..

    November 24th, 2012 at 8:19 pm
  3. Richard said:

    Does anybody at the NFA see that they are the problem in the FX market? They just don’t see their own incompetence along with the CFTC.

    November 25th, 2012 at 12:24 am
  4. Alex said:

    The only US brokers left with any balls will be FXCM and GAIN . All others will be either sold off, cut up or move only to a NON US based client book.

    November 26th, 2012 at 9:52 am
  5. FX Chief said:

    Alpari US will most likely to give up RFED license too due to recent drop in retail business, lack of new accounts and laying off KEY senior personnel leaving only 2 junior guys in sales … FCM is clearly the last resort to have US presence on the market for such a week company like Alpari!

    November 28th, 2012 at 7:25 am
  6. Richard said:

    Alpari is NOT leaving the USA market. They need it for IPO…they are going down a different strategy that other brokers have not taken…sometimes when everyone goes right…you need to go left. Clearly not a popular choice with the disgruntled Alpari USA employee who was “let go” but they are definately not the ones leaving!

    November 30th, 2012 at 10:23 pm
  7. binarymike said:

    @ Richard – Per your comment you might want to check your couterparty’s remarks on the “investing in people” and IPOs: “Alpari isn’t public, so don’t have to answer to shareholders… We are all about organic growth, and invest in people.” and “Wants to do IPO, but not US… ” From the London Panel on M&A: http://forexmagnates.com/forex-magnates-london-summit-ma-panel-video-review/.
    For the record I am not a former employee of Alpari but being “let go” is not a popular choice with anyone Richard. Usually companies that mention IPOs are foreseeing a strong period of growth or else their valuation would not hold. I quote here again Alpari UK CEO: “goal to invest in people, even as valuations are falling” , from out we know and this may not be the entire reality of it, it seems that Alpari has “let go” of a considerable amount of people in Sales and Management.
    Alpari is thinking of doing an IPO “but not US” so unless you enjoy wasting time and money some of us would be curious to see where your left turn is going to lead Alpari US: merge with another US broker and consolidate operations to reduce overhead, sell the operation, give up RFED to finally leave the US market?

    December 2nd, 2012 at 7:23 pm

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