The US National Futures Association (NFA) has sent out a proposal to its 43 Forex Dealer Members (FDMs) which if passed will almost inevitably lead to a huge consolidation in the US retail market. The proposal will be presented to the NFA’s board in August; if it is ratified, it will then be sent to the Commodity Futures Trading Commission (CFTC), which effectively acts as the NFA’s gatekeeper. If accepted by this body, the NFA will then set a date by which FDMs would have to meet the new capital requirements.
The reasons for the proposal are obvious. “In the past 20 years, there have been nine FCM (Full Commission Merchants) insolvencies. Since 1990, there have been only two insolvencies by traditional FCMs trading on US exchanges, and no funds in segregated customer accounts were lost in either of those two instances. This is from a population that averages around 250 (over the last 20 years),” says the NFA.
“The FCM insolvency rate becomes more troubling when FDMs are added to the mix. Of the three bankruptcy or receivership proceedings for insolvency occurring in the last four years, two have involved FDMs (Refco was the third), and they are drawn from the smaller FDM population (averaging around 40).