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).