November FCM Data Shows FXDD & GFT Fall Below Net Capital Requirements

6 Comments

Yesterday we saw the publishing of the CFTC’s Q4 account profitability report, today we take a look at net deposits from FCMs as of November 30th 2012. In the past we have compared monthly ‘Adjusted Net Capital’ and ‘Retail Forex Funds’ figures and ignored the ‘Excess Net Capital’ number as firms were adequately capitalized (at least in their reports –ie. PFG Best), and there was rarely much of a surprise. However, for this time around we have replaced the month over month ‘Net Capital’ number with the ‘Excess Net Capital’ figure.

As can be seen below, both FXDD and GFT fell below their Excess Net Capital requirements at the end of November. The drop in FXDD was previously documented in the NFA’s memorandum they issued to the broker which had been disputed by FXDD. However, the GFT net capital drop is a huge surprise and apparently this was the point of contention between the CFTC/NFA and the broker. Based on numerous sources, we wrote in the past that the NFA had embarked on enforcing ignored accounting principles in regards to the pooling of funds from foreign subsidiaries. As can be seen below, the new accounting calculations had severe effects on both GFT and FXDD. It’s worth noting that among large brokers, with the exception of Oanda, firms experienced a drop in their ‘Adjusted Net Capital’.

In addition to the drop in Net Capital, during November US brokers also saw a huge fall in Retail Forex Funds. Account funds dropped over $75 million to $742,103,740 from $817,134,898, with FXCM responsible for 2/3 of the decline. Other than FXCM, the other notable drop in funds occurred from GFT. Overall, the drop in total retail account funds follows the negative trend in the US where the Forex industry has been contracting due to an exit of brokers, the MF Global and PFG scandal, a renewed interest in equity trading among retail customers, as well as fewer foreign clients due to the lack of CFDs and high margin requirements.

nov fcm asset data







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6 Comments on this post

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  1. Michael Greenberg said:

    that’s NFA’s way to show that they were ‘right’ and GFT was wrong, but what actually happened is that NFA changed a rule overnight which overnight made GFT fall below capital requirements and then reported GFT as being undercapitalized…

    January 15th, 2013 at 9:03 am
  2. Ohmygosh said:

    Wow….ILQ is just $64K over capital requirements.. Looks really scary.
    Seems if one month they get a bigger utility bill they might go under…

    January 15th, 2013 at 3:03 pm
  3. Michael Greenberg said:

    not really, remember that they keep 20+ mil frozen and with less than 1k clients this capital alone is probably x2-3 times the customer obligations

    January 15th, 2013 at 3:20 pm
  4. Ron Finberg said:

    Re: ILQ – In the previous month’s report, the had a slightly larger capital requirement with net capital of $21 mil+. With a $900k in excess capital they may have been doing some shifting of funds around.

    January 15th, 2013 at 3:55 pm
  5. A. said:

    It’s not ILQ that attracted my attention, but Interactive Brokers. 1.4 billion? Are you sure there’s no mistake? It’s 7 times more than the next one, Knight Capital Americas. This is huge, mind-blowing!

    January 16th, 2013 at 7:13 pm
  6. Ron Finberg said:

    IB is a huge company. It’s also split between its option market making division (Timber Hill I belive its called) and the brokerage business. Being well capitalized has been one of their strengths for years.

    January 16th, 2013 at 7:20 pm

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