Two years ago, the mass exodus of retail FX firms from the US market was dramatic and rapid, with forty operational companies becoming just nine as the electronic trading environment in the land of the free became far more concentrated on institutional FX firms and large, publicly listed exchange technology firms such as IntercontinentalExchange which rose from being a small boutique venue to a diverse global derivatives marketplace and technological innovator, and the post Dodd-Frank Act regulatory environment caused many firms to exit the retail market altogether.
There are exceptions, many of which are large conglomerates such as FXCM Inc (NYSE:FXCM) and Gain Capital Holdings Inc (NYSE:GCAP), both of which embarked on vast merger and acquisition activity, acquiring the client bases of rival firms, specialist technology companies and even, in the case of GAIN Capital, extending their economies of scale across the Atlantic to bring British spread betting and multi-asset CFD facilities, having acquired City Index for $118 million, to global customers at the exact same time as their rivals closed the door on the US market.
The US market is far from non-viable, however. Today, some introducing brokers continue to operate, filling the void that the exiting brokerages left, and indeed serving a very adept American audience and providing good business ethics.
One such company is Forest Park FX in Boca Raton, Florida. Today, FinanceFeeds spoke candidly to Justin Hertzberg, CEO of Forest Park FX in order to expand on the important factors when operating in America, as well as the company’s avantgarde approach to electronic trading, having been one of the first entities in the world to offer exchange-traded binary options trading alongside its FX products.
“As the principal of an NFA registered, independent introducing brokerage firm, I know firsthand the hoops firms need to jump through to remain in compliance with US regulations. There are stringent net capital requirements, cash activity restrictions, promotional material limitations, AML policies, and procedures that need to be followed to address nearly every CFTC and NFA rule, bylaw and interpretive notice thereon” he explained.
“Making sure I am operating within regulation can (and does) keep me up at night. And for many RFEDs and IBs, it has proven to be too much – with well known (and equally well regarded) firms closing their doors, selling their books and/or moving to less regulated jurisdictions in recent years. Each time this happens, I lament that the lack of RFEDs left in the U.S. is bad for the industry – and I just did it again when TradeKing, a guaranteed IB of Gain Capital/Forex.com, announced its acquisition of MB Trading just last week. Why? Because fewer brokers mean less competition. And less competition means potentially higher costs of trading and a ‘take it or leave it’ attitude. Moreover, as an IB in the industry, fewer brokers also means that my firm has one less option to offer its clients.”
Mr. Hertzberg then turned to the subject of analyzing which firms left, compared to those who stayed and eventually reaped the rewards “But if I am being fair and objective, the firms that have left the industry were the weaker ones. They were firms which did not have the capital or the internal controls or the wherewithal to adhere to the rules and regulations to which we are all subject.”
In some sense it is a survival of the most compliant. And the firms that remain have a strong commitment to compliance…and that is never a bad thing for the industry or traders. In a world where non-US brokers routinely claw back profits, delay withdrawals, or manipulate client executions, the RFEDs which remain seemingly take the high road – and the lumps – when they encounter sharp flow, profitable traders and large withdrawals.”
“They may choose to terminate a client relationship, but the client will receive his funds (and profits) without issue. Say what you will about only 50:1 leverage, FIFO and hedging restrictions and prohibitions on CFD trading, at least the trader will be dealing with a professional broker focused on compliance and not absconding with your money. Thanks in large part to the teeth of the CFTC and the NFA, the only rioting we’ve seen outside of a broker’s office has occurred in faraway lands and not in New York, New Jersey or Chicago” concurred Mr. Hertzberg.
“Yeah, it might be tough living in the NFA. But that isn’t necessarily a bad thing…and certainly not for the trader” concluded venerable Mr. Hertzberg.
Justin D. Hertzberg, Esq. is the principal of Forest Park FX, www.forestparkfx.com, an NFA member independent introducing brokerage firm.
Forest Park FX specializes in creating custom FX brokerage and trading solutions for traders and money managers and offers a wide variety of value-adding services, including market access through the world’s top Forex brokers, cash back rebates, built-to-specification trading algorithms, administrative and operational support for money managers and customized liquidity for institutional and high volume traders.