Analysis: Industry Comments on New NFA Regulatory Proposal

After the game-changing black swan from January this year, we are witnessing the first major consequences for U.S. regulated brokers

Almost half a year has passed since we observed the most intensive currency move in modern times after the Swiss franc was free- floated by the Swiss National Bank. The authorities have kept a floor in the EUR/CHF exchange rate since September 2011, and consistently reassure the market that the commitment of the central bank is rock solid.

The rhetoric of the SNB was instead quickly scrapped to produce the largest currency move in a major pair in modern history. This exposed some vulnerabilities in the market and resulted in market turmoil for a number of brokerages in the industry.

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Risk management and capital requirements are the key points where brokers can do more

It was at the iFX Expo in Cyprus, where top industry executives from a number of major brokers and technology providers  vibrantly and candidly discussed the way to protect the industry from future turmoil.

A set of challenges were identified by all parties present at the discussion. Coincidentally or not, two major points were touched upon in the newly proposed regulatory framework by the U.S. National Futures Association (NFA) published late last Thursday.

The top industry executives, including the tech CEOs of Integral and OneZero, Harpal Sandhu and Andrew Ralich, the CEO of SwissQuote Marc Burki, LCG’s Head of Sales and Trading Francois Nembrini and Managing Director of ADS Securities Iskandar Najjar, identified risk management and capital requirements as the key points where brokers could do more.

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The new rules will strengthen the control environment, enhance capital adequacy and provide further transparency into business operations

Several hours after the conclusion of the iFX Expo panel, the theme was reiterated by the newly issued NFA proposal published late last Thursday.

The Cyprus panel discussion outlined that a more professional and qualified approach to risk management was crucial for foreign exchange dealers. A combination with a stronger capital base should provide enough of a cushion for the foreign exchange dealers, the panel at the iFX Expo concluded.

After the NFA published its proposed changes to the rules regulating foreign exchange dealers in the U.S., one of the leading brokers in the industry exclusively shared a statement with Finance Magnates reporters.

A spokesperson for GAIN Capital stated, “We have been in on-going dialogue with the NFA on this proposal and are in favor of the rule changes. They will strengthen the control environment, enhance capital adequacy and provide further transparency into business operations, all of which are designed to enhance investor protections.”

“We will continue to work closely with our regulators on topics such as these as well as on potential new developments, including, for example, initiatives to further bolster the safety of client funds,” the statement concluded.

It appears that the majority of industry participants do not revere the incoming changes to the regulatory framework in the U.S. As  outlined by Finance Magnates in its coverage of the NFA proposal, currently all foreign exchange dealers are already in compliance with the new regulations as they possess the excess of funds set aside as capital requirement.

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