Alpari and Other Forex Brokers Increase Capital

The November 2007 Futures Commission Merchant report was released today and has been processed on http://www.brokerontop.com.  Here's an updated status of the broker's I mentioned may be in trouble earlier in the week:

• CMS Forex (needed 10 million, barely compliant in October) increased excess net capital by 4%
• Hotspot FX (need 5 million, barely compliant in October) increased excess net capital by 1%
• Forex Club (need 10 million, seriously undercapitalized in October) increased excess net capital by 65%
• MB Trading (need 10 million, seriously undercapitalized based on October report) increased excess net capital by 168%
• Easy Forex (don't know their leverage but still seriously undercapitalized based on October report) increased excess net capital by 184%
• Alpari (need 10 million, seriously undercapitalized based on October report) increased excess net capital by 271%

Check out the Small-cap Brokers.

Popularity: 5%

Forex Broker Financial Data

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

Popularity: 2%