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Old 08-06-2012, 01:10 PM   #1 (permalink)
 
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CFTC Roundtable on PFG


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:

http://comments.cftc.gov/PublicComme...m.aspx?id=1250


Charles Delano
Director of Government Affairs
FXCM, LLC
http://www.fxcm.com/financials.jsp

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Old 08-14-2012, 11:22 AM   #2 (permalink)
 
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Highlights: CFTC Roundtable on PFG


Last Thursday the CFTC held a public hearing to determine what steps should be taken to repair the damage done by the bankruptcies of PFG and MF Global. I’d like to share with everyone some of the highlights of the hearing:

Better Accounting Standards: There was much discussion of auditing standards for both Regulators of FCM’s and the CPA’s who audit FCM’s. There was general agreement these standards need to be raised. FXCM believes FCM’s should be required to use a top accounting firm to avoid the kind of accounting issues that plagued PFG.

Additional Disclosure Requirements: An extensive discussion on FCM transparency was held and it is clear that FCM’s are going to have to make more disclosures of their books to regulators and to the public. The question is how much is to be disclosed? On the one hand there was testimony from FCM’s like Vision who publish their balance sheet on their website and on the other hand were those who were concerned that too much disclosure could lead to possible “bank runs” by investors. FXCM believes investors should be able to see a company’s audited financial statement once a quarter. Too many investors are forced to fly blind when they choose a Futures Commission Merchant or Forex Dealer. No trader should be subjected to this kind of risk post-PFG.

Insurance: Commissioner Bart Chilton released his proposal for a futures insurance fund on the same day of the hearing. Towards the end of the Roundtable the topic turned to insurance and John Roe of the Commodity Customer Coalition once again made a forceful case for a fully insured fund for the futures industry. As of now, Commissioner Chilton’s proposal does not include retail forex, but there is no reason that it shouldn’t. FXCM supports insurance for the futures/forex industry.

The CFTC will now deliberate into October before announcing their proposals. We encourage everyone to comment using the link below:

http://comments.cftc.gov/PublicComme...m.aspx?id=1250
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Old 08-16-2012, 11:34 AM   #3 (permalink)
 
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The Case for Public Disclosure


Just read a very interesting comment letter to the CFTC by James Gellert of Rapid Ratings:

http://comments.cftc.gov/PublicComme...46&SearchText=

Mr. Gellert makes the following comment about the benefits of FCM’s being required to disclose their audited financials:

Quote:
Would Mr. Wasendorf have been as ready to invent financials if his customers had demanded full, audited balance sheets and income statements all along? Would Mr. Wasendorf have been able to compose such reports with sufficient skill as to withstand rigorous third-party examination over twenty years? Rapid Ratings recalls that, by applying large numbers of interrelated calculations to the published reports of Enron, our firm was able to detect vivid inefficiencies entirely inconsistent with the investment grade ratings that Enron enjoyed from the...
Mr. Gellert’s point about the difficulty of forging financial documents using the kind of standards that publicly traded companies use is well taken. Had PFG been forced to use such standards Wasendorf’s scam would have likely been caught long before July of 2012. Furthermore, ratings agencies like Rapid could break down the data in a manner that average investors could more easily understand. Although, we disagree that only ratings agencies be allowed to see such data. We believe any trader who opens an account with a FCM or Forex Dealer should be able to judge for themselves a firm’s financial health.

You can make your feelings known to CFTC by posting comments here:
http://comments.cftc.gov/PublicComme...m.aspx?id=1250
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Old 08-19-2012, 09:07 AM   #4 (permalink)
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Quote:
Insurance: Commissioner Bart Chilton released his proposal for a futures insurance fund on the same day of the hearing.
Swaps won't help Bart. It's a confidence issue, and insurance from companies that cannot afford to pay won't restore confidence.

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Old 08-19-2012, 12:46 PM   #5 (permalink)
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IMO the problem is top down. because of all the phony derivatives stuff -- all the derivatives based on securitized debt -- there is one quadrillion in these derivatives that simply cannot be repaid if they are called upon. that puts the whole banking system at risk, which is what we saw in 2008 and what we see with stuff like the LIBOR interest rate rigging. once these banks are at risk, any firm that uses them -- and that includes brokerage firms of all kinds -- is at risk, even if they are impeccably run and operate with the highest degree of integrity.

ultimately i expect the central banks of the world to paper over all losses, although it should be noted some MFG customers have not been made whole yet.

but my point is that to get real reform that works, it needs to go top down from the underlying global monetary system; reform that focuses just on a given industry will not be sufficient to alleviate all risks, in my opinion.
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Old 08-20-2012, 02:41 PM   #6 (permalink)
 
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Originally Posted by Tekmnd View Post
Swaps won't help Bart. It's a confidence issue, and insurance from companies that cannot afford to pay won't restore confidence.

Cheers
Tek
That's the key. How much will this cost FCM's? Because at the moment FCM's are really hurting and can't afford ANY additional costs.
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Old 08-20-2012, 02:42 PM   #7 (permalink)
 
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Post-PFG Reforms Gaining Momentum


Two new developments in the last few days indicate that regulators are trying to get out in front of the safety of funds crisis that has gripped the futures/forex industry. However, these reforms may not extend to the retail forex market.

On Friday the National Futures Association approved a new rule requiring all Futures Commission Merchants to grant real-time, online access to FCM bank accounts. This rule is in response to Russ Wasendorf’s bank statement forgeries which had fooled regulators for 20 years. The language specifically references FCM’s and we are currently checking to see if Retail Foreign Exchange Dealers (RFEDs) will have to comply with the rule as well. FXCM’s position is that RFEDs need to be more transparent, which is why we also support a rule requiring all FCMs/RFEDs to fully disclosure their financials to the trading public.

The second development came last Thursday at a meeting in Chicago, as reported by the WSJ, in which the CME was reportedly “softening” its opposition to an insurance fund for futures traders. Again, however, no mention of extending such protections to retail forex traders was made.

Futures Industry Leaders Discuss Insurance Fund - WSJ.com

While both of these development are positive, the negative aspect to them is that retail forex may very well be over looked. This is why we are strongly encouraging the trading public to contact the CFTC and leave comments about the need to further protect retail forex traders. Traders can leave comments using the link below:

http://comments.cftc.gov/PublicComme...m.aspx?id=1250
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Old 08-27-2012, 11:05 AM   #8 (permalink)
 
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Another Strong Argument in Favor of Additional Retail Forex Protections


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.cftc.gov/PublicComme...21&SearchText=

Quote:
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.
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Old 08-29-2012, 02:42 PM   #9 (permalink)
 
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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.cftc.gov/PublicComme...t.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@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.
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Old 08-31-2012, 02:38 PM   #10 (permalink)
 
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Retail Forex Not Part of New NFA Reforms


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@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.
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