The fine comes on the back of the CFTC’s investigation into the broker, a Futures Commission Merchants (FCMs) that offers retail off-exchange foreign currency trading, for not meeting the $20 million adjusted net capital brokerage firms have to maintain. In its findings the broker improperly included certain funds held in four accounts in its adjusted net capital computations. The CFTC found that after excluding those funds as required, MB Trading failed to meet its adjusted net capital requirements for 456 calendar days between October 18, 2010 and March 1, 2012.
The US OTC FX markets took a turbulent turn post new regulation in; leverage, order rules (FIFO) and capital adequacy requirements. The new rules which were implemented after the 2008 global recession had a detrimental effect on the US market in so far as broker numbers and trader numbers were on the decline.
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The new minimal capital requirements rules were effective from the 18th of October 18, 2010. The new framework was intended to protect individual investors that engage in the trading of FX. The rules state that regulated brokers classified by the CFTC as; RFEDs and/ or FCMs that offer or engage in retail forex transactions must at all times maintain adjusted net capital of $20 million, or more in some circumstances, and hold enough assets to meet or exceed their total retail forex obligations to customers. The new rules impose several restrictions on the types of funds that firms can include in their adjusted net capital and asset computations.
Minimal capital requirements for OTC brokers is common across major regulatory bodies. In the UK firms who act as principal brokers in OTC contracts must maintain a minimal capital of seven hundred and thirty thousand Euros. Presently the Untied States requirements are the steepest across all regulators however new proposals by Turkey’s financial regulatory, SPK, is set to be in-line with the US requirements.
MB Trading was part of a group of US based FX brokers that looked outside their home market to tackle the rule changes for FX markets. Several US brokers set up shop in the UK under the FSA where they were able to maintain leverage of 100 or 200 to 1 and have lower capital requirements.