NFA’s concerns

The NFA listed four specific reasons for the rule change. First, trading spot forex, which FDMs do, creates more risk than trading futures and options listed on an exchange.

Second, since spot forex is not a priority under the NFA’s Bankruptcy Code, it’s particularly important for FDMs to have adequate capital.

Plus, two of the three bankruptcy proceedings in which the NFA has taken part in the past four years have involved smaller FDMs, and with the cumulative amount of retail funds under account surpassing $1 billion, the NFA is concerned that an FDM might be unable to meet its financial obligations to its customers.

Earlier in the year, Concorde Forex Group (CFG Trader) was shut down by the NFA and forced to liquidate all open positions because it was undercapitalized. CFG Trader customers collectively lost about $1 million, and the NFA says this incident was a catalyst for the new rule, particularly the new accounting requirements.

When CFG’s books were examined after its trading was suspended, it was discovered the firm’s assets were held in multiple accounts, company and customer funds were commingled, CFG had no anti-money laundering program and no internal compliance staff, and it had never been audited.
As a result, firms that meet the new capital requirements will also have to file an internal control report prepared by an independent auditor, and the NFA would have limited ability to request certification of an FDM’s finances. Also, each FDM would have to designate an individual to oversee the firm’s finances, and that person would be subject to discipline if accounting and capitalization rules are not followed.