PFGBEST accounts - LIQUIDATION ONLY - NFA Problems!

[FCM-Reform]

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.

http://online.wsj.com/article/SB1000087 ... lenews_wsj

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/PublicComments ... px?id=1250

[FCM-Reform]

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/PublicComments ... earchText=

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.

[FCM-Reform]

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/PublicComments ... px?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.

[FCM-Reform]

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.

[FCM-Reform]

I've been asked why retail forex does not have seg funds protection and so I wanted to pass along this brief regulatory history of the retail foreign exchange market:

In 2001 retail online currency trading was regulated for the first time with the passage of the Commodities Futures Modernization Act of 2000 (“CFMA”). This law provided that any non-bank firm making a market in retail FX transactions could be registered and licensed by the Commodities Futures Trading Commission (“CFTC”). This law was a step in the right direction but it did not in any way grant customers trading FX with these firms any funds protection in the event of bankruptcy as is common in exchange traded markets such as equities and futures.

In particular, the CFMA did not make any adjustments to the CFTC’s “segregation rule.” The segregation rule stipulates that all client funds deposited for trading domestic, on exchange futures or options on futuresbe kept segregated from all company funds and that in the event of bankruptcy the customer’s funds are legally segregated from creditors and must be returned to the clients.

In May 2008, Congress amended the Commodity Exchange Act (“CEA”) and created an entirely new registration category, the Retail Foreign Exchange Dealer (“RFED”), for forex dealers operating in the U.S. Neither at that time nor two years later when Congress enacted sweeping financial sector reform legislation with the Dodd-Frank Reform and Consumer Protection Act of 2010 were provisions included that could have provided for RFEDs to segregate funds for the protection of retail FX customers

The CFTC explained the reason for not including segregation of funds for retail FX as follows:

http://www.cftc.gov/ucm/groups/public/@ ... 21729a.pdf


“… Several commenters maintained that the Commission should require segregation of customer funds by counterparties in order to provide some protection in the event of a counterparty insolvency. The Commission’s segregation requirements with regard to futures flow from Section 4d of the Act which, generally speaking, requires that customer property for trading commodity contracts be kept apart, or segregated, from the FCM’s own funds. However, as noted in the Commission’s proposing release, a segregated funds regime cannot be replicated in the context of off-exchange retail forex trading. Unlike segregation of customer funds deposited for futures trading, under the relevant provisions of the Bankruptcy Code, such amounts held in connection with retail forex trading would not receive any preferential treatment to unsecured creditors in bankruptcy.”

This hiccup with the bankruptcy code is what is currently holding up everything from seg funds protection to insurance. More in my next post.

[garyfritz]

Notice of Motion and Motion to Approve (I) Transfers and Interim Distributions to Certain Commodity Customers of the Debtor, and (II) Procedures for Soliciting Offers from Futures Commission Merchants to Receive Such Transfers on Account of Commodity Customers Filed by Robert M Fishman on behalf of Ira Bodenstein. Hearing scheduled for 9/12/2012 at 10:00 AM at 219 South Dearborn, Courtroom 742, Chicago, Illinois 60604.

http://www.omnimgt.com/CMSVol/CMSDocs/p ... 16_147.pdf

I've only skimmed it so far, but it looks like they're preparing to start releasing funds to account holders within the next few weeks.

Caveats:

* It looks like they're presently looking at returning only 30-40% (even though they have $181M on hand, and Wasendorf "only" stole $200M??).

* They are **NOT** currently planning to return any money to forex customers. Points 11-12, p. 5: "The Forex customers and Metals customers, however, do not hold claims against the Debtor on account of 'commodity contracts' and therefore, are NOT 'customers' under para 761(9) of the Bankruptcy Code and Part 190 rules."

So, forex customers are still screwed for now.

[AnotherBrian]

Notice of Motion and Motion to Approve (I) Transfers and Interim Distributions to Certain Commodity Customers of the Debtor, and (II) Procedures for Soliciting Offers from Futures Commission Merchants to Receive Such Transfers on Account of Commodity Customers Filed by Robert M Fishman on behalf of Ira Bodenstein. Hearing scheduled for 9/12/2012 at 10:00 AM at 219 South Dearborn, Courtroom 742, Chicago, Illinois 60604.

http://www.omnimgt.com/CMSVol/CMSDocs/p ... 16_147.pdf

I've only skimmed it so far, but it looks like they're preparing to start releasing funds to account holders within the next few weeks.

Caveats:

* It looks like they're presently looking at returning only 30-40% (even though they have $181M on hand, and Wasendorf "only" stole $200M??).

* They are **NOT** currently planning to return any money to forex customers. Points 11-12, p. 5: "The Forex customers and Metals customers, however, do not hold claims against the Debtor on account of 'commodity contracts' and therefore, are NOT 'customers' under para 761(9) of the Bankruptcy Code and Part 190 rules."

So, forex customers are still screwed for now.

So if you were a Forex trader with PFG, you now have an injection of sand in your Vaseline to potentially make this a really painful screwing.
Bend over and grab your ankles, the NFA is coming to town!

There is still no clarity on how much money they are supposed to have and how much they actually have to distribute. At least I can't find it all in one place.

[garyfritz]

Forex customers are still supposed to get some attention at some point. Just not in this first phase.

[FCM-Reform]

Caveats:

* They are **NOT** currently planning to return any money to forex customers. Points 11-12, p. 5: "The Forex customers and Metals customers, however, do not hold claims against the Debtor on account of 'commodity contracts' and therefore, are NOT 'customers' under para 761(9) of the Bankruptcy Code and Part 190 rules."

So, forex customers are still screwed for now.

This is very disturbing. Forex traders need to demand from regulators that the situation as it stands cannot be tolerated. Safety of funds for retail forex customers must become a priority.

[FCM-Reform]

As regulators continue to investigate PFG news is coming out showing that the futures firm had been losing money for years:

http://www.valuewalk.com/2012/09/pfgbes ... gh-assets/

QUOTE:

"Its financial statement submitted to the court, indicated that the business has been going down since 2010. The company suffered $2.7 million in gross income losses in 2010, $1.2 million in losses in 2011, and $259,000 losses during the six month period of the current fiscal year."

PFG had recorded three straight years of losses. And yet they had just moved into an $18 million glass and steel office complex in Iowa boasting some of the most luxurious office amenities imaginable. But because PFG never had to disclose their losses they were able to give customers the impression that the firm was healthy and growing, when in fact it was sick and contracting. Customers should be aware of this before they open an account. Particularly since there is no insurance for futures or forex.

The CFTC postponed their vote on additional customer protections this week giving traders a little more time to comment.