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CFTC Slaps $275,000 Penalty on CMS Forex over Capitalization Flaws

The United States Commodity Futures Trading Commission (CFTC) on Monday imposed a $275,000 penalty on Forex broker Capital Market Services, LLC (CMS) over failures to meet requirements for the capitalization of Futures Commission Merchants (FCM), Retail Foreign Exchange Dealers (RFED) and FDMs.  

 
The watchdog has found that the broker had trouble meeting the capital requirements for at least 17 months in the period from March 2009 until October 2012. At some point, the deficiency was massive at $13 million. Well, now you must be asking yourselves what kind of a requirement we are talking about. The minimum capital requirement for an FCM is at $1 million, but for FCMs that are also registered as RFEDs (these are the retail brokers, putting it bluntly) the sum rises to more than $20 million. For CMS Forex the sum was $21 million. 
 
The order from the CFTC is not only imposing the penalty but is also settling the charges against CMS, with the regulator admitting the firm's cooperation and the measures undertaken to tackle the deficiencies. 
 
This case highlights how rough the regulatory climate has become for US Forex brokers – the number of Futures Commission Merchants in the country has fallen recently, with many brokers choosing to quit the US Forex market. One example is Alpari US, which in September 2013, announced the closure of its US retail FX operations. And just a couple of days ago it became clear that Institutional Liquidity LLC is also leaving the list of FCMs and is transferring its business to Advantage Futures.
 
The capital requirements for US Forex brokers are amid the most stringent in the world. They only lag behind those in Switzerland, where a Forex broker should have a capital of at least CHF 20 million ($22.5 million). On the other hand, we have countries like Cyprus where the minimum capital requirement stands way lower at $1 million.
TAGS: cms  cms forex broker  capital market services  us forex broker  cftc  nfa  capitalization  capital requirements  forex regulation  forex rules  net capital  retail forex broker  futures commission merchant 

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