This week the CFTC will be holding a public roundtable to address the concerns of traders in response to the bankruptcies of PFG and MF Global. FXCM would like to announce its own proposals to help restore confidence for futures and forex traders in the United States.
Proposals to Bring Full Market Transparency and Accountability to the Futures/Forex Industry
The collapse of PFG Best (following so closely after the collapse of MF Global) has sent shockwaves all across the United States. The trading public has serious concerns about the integrity of the futures market and many are questioning whether Futures Commission Merchants (FCM’s) can be trusted to hold client funds. There exists today a crisis of confidence amongst retail futures and forex traders that has never existed before. If not addressed immediately, these markets will be irreparably damaged for years to come.
The following proposals are intended to bring market transparency to the industry by restoring investor confidence in FCM’s.
1) Require All FCM’s to Publicly Publish Their Financials Once a Quarter:
Currently, the CFTC publishes monthly “Net Capital” reports that disclose to the public how much money a Futures Commission Merchant has set aside in capital. However, that report provides very little insight into how well the company is doing financially. By requiring FCM’s to publish their audited financials the trading public will know how much risk they are taking with each firm since investors will be able to weigh the liabilities along with the excess capital that a Futures Commission Merchant has.
Furthermore, the published financial statement should include everything (i.e. holding company’s financials) since what happens to other subsidiaries of the company can easily effect the regulated FCM. Each company should be required to provide a link to its financials on its own homepage so that the public can do its proper due diligence.
Too often, those FCM’s that are teetering on the edge of bankruptcy lure customers in by offering unsustainable gimmicks (dirt cheap commissions, account opening bonuses) that temporarily puts off the inevitable. Customers should be aware of the perilous finances of those FCM’s that would offer these kinds of gimmicks before opening an account with such a firm. PFG Best was a classic example of a firm that used such gimmicks as they routinely low balled their competitors with uneconomical discounts that no reputable, legally compliant firm could match.
2) Require all FCM’s to Employ a Top Ten Accounting Firm:
There need to be much higher accounting standards than currently exist in the FCM world. The Platt Group publishes an annual ranking of public accounting firms that could be used by FCM’s. Whether it is top 10 or top 25, the main point is that FCM’s must use a nationally recognized and respected accounting firm that could apply the same tough standards to FCM’s that publicly traded companies must meet.
The Public Trust
While no one proposal will guarantee that a future FCM will not fail, these proposals will help restore the confidence of traders by bringing greater market transparency and accountability into the world of futures/forex trading.
Traders can show their support for these proposals by leaving comments with the CFTC using the following web page:
Director of Government Affairs