Items Tagged With fcm

I guess we'll find out sooner or later but Forexds has an interesting comment regarding the whole thing:

"I know that many of the small FCM fishes have become IB's to established FCM's in December or sold their books to the likes of FXCM. But ALL of the names you mention in your note have posted the higher capital (I know for a fact that MB Trading and FX Club have). Alpari is a new comer to the US, but very well established in Eastern Europe. The higher net cap requirement of $10m is no surprise to FCM and they've had months to prepare and get the capital in order. You wont get the DEC data from the CFTC site until 6 weeks from now, though."

For those of you that aren't versed in the common acronyms you see in forex, FCMs are Futures Commission Merchants.  IB's are introducing brokers (defined as a futures broker who has a direct relationship with a client, but delegates the work of the floor operation and trade execution to another futures merchant.)  Some IB's may be fund managers and some could just be considered salespeople, "introducing" traders to a larger broker and taking a commission and a cut of the spread.

The December 31st, 2007 FCM report was released from the CFTC and processed on http://www.brokerontop.com today.   Some notable mid-cap Forex brokers who remain in financial shape based on Excess Net Capital are:

1. Oanda's excess net capital decreased 1.85% from the previous month to 149 million dollars.
2. FXCM's excess net capital decreased marginally from the previous month to 61 million dollars.
3. Gain Capital (Forex.com) excess net capital decreased almost 2% from the previous month to just over 44 million dollars.

1. Interbank FX excess net capital decreased by over 40% from the previous month to 15.7 million dollars.
2. FX Solutions excess net capital decreased by 49% from the previous month to 13 million dollars.

I've perviously mentioned that the CFTC release reports each month with financial information for Futures Commission Merchants which include Forex brokers.   Within this report are 2 important columns.  The first is the Adjusted Net Capital which is the adjusted net worth of a broker (FCM) after adjustments for certain deductions.  The second is the net capital requirement which are funds that the firm must possess in order to continue to operate.  I sent an email to the CFTC to find out a little more information on the relationship between the two columns.  One question that I asked was not directly answered which was, "How can the data best be interpretated to conclude the financial health of a broker?" The good thing was I did receive the following response from an attorney at the Division of Clearing and Intermediary Oversight.

Your October 4, 2006 e-mail to the Division of Clearing and Intermediary Oversight (“DCIO”) has been forwarded to me for response.  Please be advised that there is extensive information about futures commission merchants (“FCMs”) and FOREX on the website of the National Futures Association, a registered futures association whose members include FCMs.  For example, the NFA website includes a section on the financial requirements for FCMs, and also has a section that addresses FOREX.  There is a link to the NFA website on the CFTC’s website, and I have inserted the same link at the end of this e-mail.

Link to NFA website: 

Shortcut to: http://www.nfa.futures.org/compliance/issues_fcm_ib.asp

Your e-mail also asked specifically about the relationship between a firm’s “adjusted net capital” and its “adjusted net capital requirement.”  CFTC Regulation 1.17(a) requires each FCM to maintain a minimum amount of adjusted net capital, which in general is the greatest of the following: 

(1) $250,000;

(2) the sum of 8% of the FCM’s total customer risk maintenance margin and 4% of its total noncustomer risk maintenance margin;

(3) if the FCM is a member of a registered futures association, the minimum capital amount required by the association (currently, NFA is the only such association, and its minimum capital requirements for members include several specific requirements for firms engaged in FOREX); or

(4) if the FCM is also registered as a securities broker or dealer, the amount of net capital required by Rule 15c3-1(a) of the U.S. Securities and Exchange Commission.

The term “adjusted net capital” is defined in CFTC Regulation 1.17(c), and generally refers to an FCM’s net worth after adjustments for certain reductions required by CFTC regulations.  For your convenience, I have inserted a link to Regulation 1.17 at the end of this e-mail. 

If you have additional questions, please feel free to call me at the phone number listed below.  If I am out of the office, you may call another DCIO attorney.... 

Link to 17 CFR 1.17