As expected, the National Futures Association has raised the minimum net capital requirement for US FX dealer members (FDMs) to $5 million. Depending on the amount of leverage they provide and volume of business they do, member firms will have to actually post up about $10 million to continue doing business in the US. Many firms will not be able to comply with this and those that are relative paupers will be further worried by testimony made last week by the NFA’s president and chief executive, Dan Roth, to the US House of Representatives.
“I testified before this Subcommittee in 2003 and in 2005 about off-exchange forex futures......I stated then and believe now that certain provisions of the Commodity Futures Modernization Act of 2000 and subsequent case law had the unintended consequence of making unsophisticated, retail customers the prey of fly-by-night operators,” he said.
Roth pointed out that the under-capitalization of many firms is a major problem. “Congress should... require FCMs acting as counterparties to retail forex transactions to maintain minimum capital of at least $20 million. NFA has raised the capital requirements for forex dealers several times but this congressional action could ensure that firms can meet their obligations to their customers and have a significant financial stake in their business,” he said.