Notices to Members

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Notice I-07-05

January 26, 2007

Effective Date of New Alternative Capital Requirement for Forex Dealer Members

NFA has received notice that the Commodity Futures Trading Commission has approved changes to NFA Financial Requirements Section 11 and the Interpretive Notice entitled "Forex Transactions with Forex Dealer Members." The primary effect of these changes is to replace the current FDM capital requirement based on 1% of net notional value with a new requirement based on 5% of liabilities to retail forex customers. The new requirement and the corresponding changes to the Interpretive Notice will become effective as of March 31, 2007.

NFA Financial Requirements Section 11 contains the FDM requirements. Currently, subsection (a)(ii) requires FDMs to maintain capital of at least 1% of the total net aggregate notional value of retail customer positions. This requirement has proven cumbersome for both FDMs and staff. It also fails to recognize increases in an FDM's business when the customer positions result in a negligible net aggregate value.

NFA is replacing the current FDM alternative capital requirement with one that is simpler and better recognizes the amount of customer funds at risk. Specifically, the Board amended NFA Financial Requirements Section 11 to require that an FDM maintain adjusted net capital equal to or greater than 5% of liabilities to customers and amended the Interpretive Notice to eliminate the references to the current requirement. Since an accurate accounting of customer liabilities is essential for calculating the new requirement, the Board also amended the Interpretive Notice to make clear that FDMs must maintain records of these liabilities.

The changes to the language in Section 11 and the Interpretive Notice are included in the November 21, 2006 submission letter to the CFTC. You can access an electronic copy of those changes by visiting NFA's Web site (

Questions concerning these changes should be directed to Sharon Pendleton, Director, Compliance, ( or 312-658-6540) or Melissa Slade, Manager, Compliance ( or 312-658-6552).

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