PFG Best (at making trader money disappear?)

[FCMReform]

Reading through the comments at the CFTC a number of good points have been brought up regarding the need for additional protections.

Alex Winters made the following comment to the CFTC: http://comments.www.cftc.gov/PublicComments/ViewComment.aspx?id=58421&SearchText=

Forex traders should be considered in these rulings. PFG and MF Global hurt both Forex and Futures traders during their collapse. I submit that any protections offered to futures traders also be extended to forex also. While insurance would be the best protection the emerging forex industry shares the same (and more) insecurities. For this industry to survive and prosper we must be able to trust that brokers that hold our funds are solvent especially since past CFTC rulings (50:1 leverage) require that we deposit even more of our money with brokers when we have no way auditing their financial health.

The CFTC's requirement a few years ago that traders put up more margin to trade retail forex leads to the logical conclusion that regulators put in additional protections (disclosure of company financials, better accounting standards, insurance) since retail forex traders now have more capital at risk. This is a pretty powerful argument and I would encourage traders who leave comments with the CFTC to make it.

 

[FCMReform]

CFTC Nearing A Decision Regarding FCM Reforms?

The CFTC has recently closed the comment period that was associated with the Public Roundtable on PFG:

http://comments.www.cftc.gov/PublicComments/CommentList.aspx?id=1250

This could mean that CFTC is nearing a decision and is about to announce their planned reforms. Comments and suggestions can still be sent to the CFTC however by emailing secretary@www.cftc.gov.

FXCM is recommending that all FCM’s and forex dealers publicly publish their financials once a quarter and employ a top ten accounting firm. We encourage retail forex traders to share these and other suggestions with regulators by emailing them directly. Thousands of PFG customers traded retail forex with PFG and their voices should be included in any discussion designed to increase customer protections for NFA regulated firms. Furthermore, providing insurance to futures traders and not forex traders would be a further insult to injury for those currency traders at PFG and any future forex traders caught up in an insolvency. Make your voice heard today.

 

[FCMReform]

We've been told by the NFA that the instant "view only" bank account access that FCM's must now grant to the NFA is not applicable to Forex Dealers. In short, NFA is not requiring forex dealers provide the same instant bank account access that Futures Commission Merchants provide. This is the clearest sign yet that regulators are not planning to extend any additional customer funds protections to the retail forex community.

The stated reason is that since retail forex funds are not legally required to be "segregated" they are not in the same category as the seg funds that FCM's hold on deposit. This has long been an issue involving the Commodity Exchange Act which grants seg funds to on-exchange contracts but does not have a word to say about retail foreign exchange because nobody was trading forex online in the 1970's when these laws were passed.

This logic will likely be used for additional proposals such as insurance where we can now expect retail forex to be excluded as well. This is why financial disclosure for retail forex firms becomes even more important. With retail forex dealers not being included in the safety of funds discussion currency traders are now solely left to their own due diligence when it comes to picking a broker.

We still encourage you to email secretary@www.cftc.gov to let regulators know that retail forex should not be excluded. If no one speaks up then regulators can assume that retail forex need not be a priority.

 

[BigT1]

Hello FXCM Representative (please provide your true name, title, and direct contact info here, for all to record and save for future use),
.
It is not often I've had a desire to applaud a particular broker-dealer's public efforts on behalf of clients; but your representations here have created a line of demarcation for me. Hip-Hip Hooray!
[For full disclosure purposes, I wish it known I am indeed a client of FXCM, through ATC Brokers of CA, USA]
.
Personally, I have been demanding far more radical requirements; namely, segregating client accounts of all types, and placing financial reponsibility for the accuracy of the aggregate segregated fund accounts squarely upon the Custodian Banks. By extension, I would require Custodians to "Know Your Client Firm", in the very same manner retail brokers must currently "Know Your Client".
.
Under my scenario the Custodial Banks that have been flagrantly granted free license and privelege to holding massive funds while paying zero interest along with the right to charge wholesale fees at will, must be held as first-line auditors for the NFA & NASD. The custodial banks currently enjoy a complete pass on responsibility, while they gorge themselves on mountains of free capital that support their balance sheets, and generate hugh fees with absolutely no responsibility.
The key to better regulation is to Follow the Money, and Enable Visibility: Client > Broker > Bank > (NFA or NASD) > (CFTC or SEC) > Congress > US Supreme Court > US President.
Provide visibility, insure responsibility follows this chain, and every and all audit problems are intrinsically resolved. Please contact me for details.
.
Anthony Ingrassia, CTA
NFA ID#: 0278164

 

[FCMReform]

Hello FXCM Representative (please provide your true name, title, and direct contact info here, for all to record and save for future use),
.
It is not often I've had a desire to applaud a particular broker-dealer's public efforts on behalf of clients; but your representations here have created a line of demarcation for me. Hip-Hip Hooray!
[For full disclosure purposes, I wish it known I am indeed a client of FXCM, through ATC Brokers of CA, USA]
.
Personally, I have been demanding far more radical requirements; namely, segregating client accounts of all types, and placing financial reponsibility for the accuracy of the aggregate segregated fund accounts squarely upon the Custodian Banks. By extension, I would require Custodians to "Know Your Client Firm", in the very same manner retail brokers must currently "Know Your Client".
.
Under my scenario the Custodial Banks that have been flagrantly granted free license and privelege to holding massive funds while paying zero interest along with the right to charge wholesale fees at will, must be held as first-line auditors for the NFA & NASD. The custodial banks currently enjoy a complete pass on responsibility, while they gorge themselves on mountains of free capital that support their balance sheets, and generate hugh fees with absolutely no responsibility.
The key to better regulation is to Follow the Money, and Enable Visibility: Client > Broker > Bank > (NFA or NASD) > (CFTC or SEC) > Congress > US Supreme Court > US President.
Provide visibility, insure responsibility follows this chain, and every and all audit problems are intrinsically resolved. Please contact me for details.
.
Anthony Ingrassia, CTA
NFA ID#: 0278164

Hi Anthony,

Thank you for the reply. My name is Charles Delano and I'm the Director of Government Affairs for FXCM. We have been lobbying in Washington since 2005 on the issue of seg funds for currency traders. Currently, the Commodity Exchange Act (CEA) does not include any language requiring Retail Foreign Exchange Dealers (RFEDs) to segregate customer funds from company funds. This is not surprising since the category of RFED was only created a few years ago (decades after the CEA was written.) Since 2005 we have been lobbying Congress to modify the CEA as well as the Bankruptcy Code in order to grant such protections to currency traders. As you can imagine, this is an enormous task for such a small industry. Opening the bankruptcy code is fraught with political land mines and members of Congress are loathe to do so. However, the recent implosions of MF Global and PFG have the brought the safety of funds issue to the forefront of regulators' minds.

In order to see any positive changes for the industry the public has to contact CFTC (secretary@www.cftc.gov) to implore them to include retail forex in the discussions. Thousands of currency traders at PFG lost their investments. Safety of Funds is a crucial issue for the retail forex industry. In addition to seg funds protections we are also putting forth a proposal to require all FCM's/RFED's to disclose their financials every quarter and to mandate the use of a top ten accounting firm.

If you ever have any questions just send me a message here at Peace Army or post it in this thread and I'm happy to reply. FXCM will be posting regular updates here on regulatory issues affecting the retail forex community. We simply don't have the luxury anymore of hoping for the best in regulatory matters. Too many traders have already learned that the hard way at MF Global and PFG.

 

[FCMReform]

Next Wednesday morning the CFTC will be holding a meeting where they are expected to announce additional post-PFG customer protections. As I discussed in my previous post the absence of any language pertaining to off-exchange, retail forex transactions in the bankruptcy code is the given reason cited by regulators as to why no additional protections for retail forex traders can be put in place. It will likely also be the reason that retail forex will be excluded from any insurance scheme. We shall see on Wednesday.

However, this would not preclude regulators from requiring FCM's/RFED's from disclosing their financials on a quarterly basis or requiring tougher accounting standards. In fact, absent insurance protection or seg funds these may be the only protections that can be offered to the retail forex community. Since customers cannot rely on clear legal language to protect them in the event of bankruptcy it becomes even more imperative that customers be able to see for themselves just how sturdy the retail forex broker they are doing business with is. Comments can still be submitted to CFTC by emailing secretary@www.cftc.gov

 

[BigT1]

Next Wednesday morning the CFTC will be holding a meeting where they are expected to announce additional post-PFG customer protections. As I discussed in my previous post the absence of any language pertaining to off-exchange, retail forex transactions in the bankruptcy code is the given reason cited by regulators as to why no additional protections for retail forex traders can be put in place. It will likely also be the reason that retail forex will be excluded from any insurance scheme. We shall see on Wednesday.

However, this would not preclude regulators from requiring FCM's/RFED's from disclosing their financials on a quarterly basis or requiring tougher accounting standards. In fact, absent insurance protection or seg funds these may be the only protections that can be offered to the retail forex community. Since customers cannot rely on clear legal language to protect them in the event of bankruptcy it becomes even more imperative that customers be able to see for themselves just how sturdy the retail forex broker they are doing business with is. Comments can still be submitted to CFTC by emailing secretary@www.cftc.gov

Thank you Mr. Charles Delano, Director of Government Affairs for FXCM, for your courtesy of identifying yourself personally here.
You and I have both assessed and understand the risks and potential rewards of doing so publicly.
Despite those very real personal risks, we have each made the bold choice that public openess is the only true choice for those who wish to retain the perogative and seek the privelidge of serving the future. For this I am personally gratified, as will ultimately be the condolence of the FPA community.
We do recognize that this act is surely only possible, because you are authorized to do so in your corporate environment; one that has clearly decided in favor of public openess.
This in itself is an even greater rarity. Congratulations to you and your firm.

We know the public disclosures and audit requirements you seek would be best for the industry, but we also know you would not be calling for them if you did not believe you will come out in good stead should such requirements indeed be made law of the land. It will be a sad day should even these basic, modest requests be disregarded by the CFTC; but thank you very much for the valiant attempt at moving the ball forward.
.
Sincerely,
Anthony Ingrassia, CTA
NFA ID#: 0278164

 

[FringFX]

I will be looking forward to Charles' updates and CFTC. It would be interesting to see what comes out of Wednesday's meeting. I do hope the industry will move forward from then on, it badly needs reform.

Thanks everyone

 

[FCMReform]

Thank you Mr. Charles Delano, Director of Government Affairs for FXCM, for your courtesy of identifying yourself personally here.
You and I have both assessed and understand the risks and potential rewards of doing so publicly.
Despite those very real personal risks, we have each made the bold choice that public openess is the only true choice for those who wish to retain the perogative and seek the privelidge of serving the future. For this I am personally gratified, as will ultimately be the condolence of the FPA community.
We do recognize that this act is surely only possible, because you are authorized to do so in your corporate environment; one that has clearly decided in favor of public openess.
This in itself is an even greater rarity. Congratulations to you and your firm.

We know the public disclosures and audit requirements you seek would be best for the industry, but we also know you would not be calling for them if you did not believe you will come out in good stead should such requirements indeed be made law of the land. It will be a sad day should even these basic, modest requests be disregarded by the CFTC; but thank you very much for the valiant attempt at moving the ball forward.
.
Sincerely,
Anthony Ingrassia, CTA
NFA ID#: 0278164

Thank you for the thoughtful comment Anthony. I would add we are encouraging traders to send comments to CFTC regardless of whether they support FXCM's position or not. It is vitally important that that CFTC hear from actual fx traders on a whole host of issues such as fund insurance and account segregation. We believe the transparency proposals are the easiest reforms to pass. However, with CFTC Commissioners now sending their own legislation to the hill anything is possible. But only if there is a large enough public outcry.

 

[FCMReform]

PFG's Forex Customers told to Get In Line

Last week the Trustee of PFG's estate announced a series of limited distributions to customers of the bankrupt firm. Of interest to retail forex traders is that the estate is not making any current distributions to PFG customers who were trading off-exchange forex:

http://www.omnimgt.com/CMSVol/CMSDoc...333616_147.pdf


Quote:
“The Forex Customers and the Metals Customers, however, do not hold claims against the Debtor on account of "commodity contracts" and therefore, are not "customers" under § 761(9) of the Bankruptcy Code and the Part 190 Rules. Accordingly, in accordance with subchapter IV and the Part 190 Rules, the distributions requested under the Motion, discussed below, will apply solely to the Futures Customers. Forex Customers and Metals Customers will not be included in such distributions and their claims will be addressed separately as part of the case."

The way the law is written the trustee is justified in putting futures customers first. This is why it has become urgent that regulators take additional steps to bring transparecy to the futures/forex industry so that customers can have a look at their broker's finances in order to weigh the risks invovled before putting funds on deposit with them. Since the law is not designed to currently protect forex investors, then traders need to protect themselves. This starts with granting traders the ability to conduct greater due diligence. If regulators can mandate that brokers disclose profitability ratios surely they can also mandate greater financial disclosure.

CFTC to announce initial recommendations this week. Contact secretary@www.cftc.gov with your thoughts.