Magazine article Modern Trader

The Dead Pool: Forex Min Cap Increases

Magazine article Modern Trader

The Dead Pool: Forex Min Cap Increases

Article excerpt

Having a hard time getting your forex dealer on the phone? Dealers who cannot meet the new $5 million minimum capitalization requirements by Dec. 21 are scrambling to merge, repositioning themselves as software providers or preparing to go out of business. Firms that offer 100-to-one leverage or greater will need $10 million in capitalization.

In his Sept. 26 congressional testimony, Daniel J. Roth, president and chief executive officer of National Futures Association (NFA), said that members acting as counterparties to retail forex transactions account for less than 1% of NFA's membership, but that they also account for more than 20% of customer complaints and more than 50% of NFA's enforcement docket and emergency enforcement actions taken this year. The one characteristic the troubled firms share, according to Roth, is that they are under capitalized.

"I have very mixed feelings about it," says Michael Stumm, president of Oanda Corporation. He says that NFA is right to be concerned about retail clients and safeguarding their capital. However, with the higher capitalization requirements, the barriers to entry have become higher. "Had this been a rule five years ago, then we wouldn't be in business today," he says. "You won't get a bunch of guys in a garage coming up with an idea that will revolutionize the space. They can't just go out and become market makers like Oanda did."

Glenn Stevens, CEO of Gain Capital Group, supports the increase, as well as Roth's proposed $20 million capital requirement. …

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