Announced in November of last year, the NFA has decided on a June 30, 2013 date for FCMs acting as counterparties to forex transactions to maintain a minimum capital requirement of $20,000,000. The rule is aimed at RFEDs that downgraded their license to an FCM, with the intention of exiting the retail market and focusing on institutional traders. When first proposed by the NFA, they had stated:
Over the past year or so, we have observed that several NFA Member FCMs are almost exclusively acting as counterparty in forex transactions with ECPs. Because these FCMs are not FDMs (i.e. they do not act as a counterparty to retail forex transactions), they only must meet the minimum adjusted net capital requirement of $1 million pursuant to NFA Financial Requirements Section 1. Furthermore, the vast majority of ECPs doing business with these thinly-capitalized FCMs are not typical institutional customers.
Affected by the new rules will be Easy Forex (which downgraded in 2010), Forex Club and Advanced Markets.
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Effective Date of Amendments to NFA Financial Requirements Section 1(a) – Adjusted Net Capital Requirement for FCMs Acting as a Counterparty to Forex Transactions with Eligible Contract Participants (ECPs)
NFA Financial Requirements Section 1(a) requires FCMs to maintain adjusted net capital equal to or in excess of the greatest amount calculated under a number of alternatives as applicable to the FCM. The Commodity Futures Trading Commission has approved an amendment to NFA Financial Requirements Section 1(a), which sets forth an alternative minimum adjusted net capital requirement that applies to an FCM that acts as a counterparty to a forex transaction with an ECP. Specifically, the amendment includes a provision that requires an FCM that acts as a counterparty to a forex transaction with an ECP to maintain adjusted net capital of at least $20,000,000. The $20,000,000 requirement is the absolute minimum requirement for those FCMs as they remain subject to the other applicable alternative calculations set forth in Financial Requirements Section 1(a), which may result in a higher adjusted net capital requirement. This amendment to NFA Financial Requirements Section 1(a) becomes effective June 30, 2013.
More information on this amendment can be found in NFA’s November 20, 2012 Submission Letter to the Commodity Futures Trading Commission. Questions concerning this change should be directed to Sarah A. Walsh (firstname.lastname@example.org or 312-781-1202).