Notices to Members

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Notice I-08-20

July 23, 2008

Proposed Changes to Net Capital Requirements for Forex Dealer Members

The CFTC Reauthorization Act of 2008 (Reauthorization Act) increases the adjusted net capital requirement for certain forex counterparty Futures Commission Merchants and Retail Foreign Exchange Dealers to $20 million. This increase is phased in, with the first increase scheduled for 120 days after enactment or at such later date as the Commodity Futures Trading Commission (CFTC or Commission) proposes and finalizes rules regarding retail forex transactions. If implemented under the 120 day schedule in the Reauthorization Act, NFA's Forex Dealer Members would be required to have $10 million as of September 19, 2008, $15 million by January 17, 2009, and $20 million by May 16, 2009.

Based on recent discussions with CFTC staff, NFA anticipates that the Commission will not have published final rules effectuating the capital requirement and other provisions of the Reauthorization Act by September 19, 2008. Given that Congress recognized the importance of increased capital requirements, however, NFA's Executive Committee believes that NFA should require its Forex Dealer Members to meet the increased requirements according to the schedule in the legislation. To give Forex Dealer Members sufficient notice, however, NFA plans on making the first increase effective on October 31, 2008 rather than on September 19, 2008.

On July 17, 2008, NFA's Executive Committee recommended that NFA's Board of Directors approve revisions to NFA Financial Requirements Section 11 to implement the increased capital requirements called for under the Reauthorization Act. Under these revisions, Forex Dealer Members will be required to maintain adjusted net capital equal to or in excess of $10 million as of October 31, 2008, $15 million as of January 17, 2009, and $20 million as of May 16, 2009. NFA staff expects that the Board of Directors will adopt these revisions at its meeting on August 21, 2008 and that the Commission will approve them shortly thereafter. We are providing advanced notice of the increase in capital requirements to give Forex Dealer Members sufficient time to make arrangements to come into compliance.

In addition to the increase in the required minimum capital, the Executive Committee also recommended that the Board of Directors approve revisions to NFA Financial Requirements Section 12 regarding the collection of security deposits. Section 12(a) requires that Forex Dealer Members collect and maintain minimum security deposits of either 1% or 4% of the notional value of each forex transaction, depending on the currency. Section 12(b) provides an exemption from this requirement for those Members that consistently maintain at least twice the required adjusted net capital. The revised rule would provide that a Forex Dealer Member that consistently maintains 150% of the required adjusted net capital would be exempt from having to collect the prescribed security deposits. As with the capital requirements, NFA staff anticipates this revision also becoming effective on October 31.

Questions concerning this notice should be directed to Sharon Pendleton, Director, Compliance, ( or 312-781-1401) or Valerie Kretschmer, Manager, Compliance ( or 312-781-1290).

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