Gary Tilkin, President & CEO at Global Forex Trading (GFT),  has been the 4th top executive of the selected 20 FX Brokerage firms to answer FXstreet’s questionnaire regarding new NFA requirements and their potential impact on the FX industry.

I want to thank Gary for attending my request and wish him and his company GFT all the best of luck.

Francesc

Questionnaire:

1- What is your opinion on the recent NFA regulatory changes? How do you view the implementation of these new measures for FDMs?
In general, we view the NFA’s new changes as a positive for the forex industry.  GFT has always operated with integrity and acted as though far tougher regulations existed in the retail forex industry, even prior to the Commodity Futures Modernization Act of 2000.  More recently, GFT has been working with the NFA on many of the new regulations you refer to, and in fact, GFT has suggested to the NFA some of the regulations that are being implemented.  GFT continues to speak with both the NFA and the CFTC in the U.S. to help work for a stronger retail forex industry.

2- The new proposal also calls for the use of proper and uniform accounting methods and tightens internal controls. Do you think this measure could affect your company’s business in some way?
Most, if not all, of the proposed changes will affect GFT as they will affect all FDMs, but we view these as positive changes.  GFT practices proper accounting methods, and employs one of the world’s big three accounting firms to do our annual audit as well as separate internal control-auditing.

Currently, GFT ranks as the #1 Forex Dealer Member, in terms of Adjusted Net Capital (according to the CFTC website, which lists Adjusted Net Capital figures for FCMs, including FDMs).  We have far more capital than the majority of FDMs and we strongly believe that our dominant position will continue, and in fact, grow with sensible regulations not only in the United States but around the world.

3- Do you consider these measures could be a breathe of fresh air that could result in more investors joining the FX Market?
The number of customers moving to the forex market is very impressive and we see this strong growth curve continuing for many years to come.  A properly regulated forex industry by well-informed regulators can only benefit everyone involved.

4- Switzerland has recently started a similar process, what is your opinion about it?
We would like to see similar regulations in most, if not all, developed nations of the world.  GFT has customers worldwide supported by three offices in the U.S. and outside of the U.S. in London, Tokyo and Sydney with more offices planned for 2008 and beyond, so we are in favor of consistent regulations globally.

5- Would your company be on the bid side if some firms were not meeting new requirements? What is your company’s policy on acquisitions of smaller firms?
GFT has the capital, service levels and depth of products to be able to greatly benefit some of the smaller forex firms that find they cannot meet the new capital requirements.  With our three versions of order entry and analysis software (DealBook 360, DealBook Web, and DealBook Mobile) as well as our training and analysis products, we are uniquely qualified to give substantial upgrades in service to customers of smaller firms.  We currently have near perfect uptime statistics for our dealing platforms and substantial additional capacity, so we are always in a position to immediately add a significant amount of new trading volume. 

GFT is currently speaking with some of the smaller players in the industry who could benefit from our capital base and capabilities, and we are interested in speaking with any firm or customer who would like to partner with GFT.

6- How do you see the M&A market in the Forex industry? Do you expect important corporative movements in the next months?
There will probably be some mergers and acquisitions, but we don’t expect many.

7- For many, the very business model of Forex brokerage firms that needs to be decided is whether or not such brokerage houses can take opposite trading positions to those held by their customers, i.e., trading ‘against them’, which contradicts traders’ well-being. What is your company position on this? How do you hedge your customers’ trades?
This question assumes something to be a fact where there is none.  The assumed fact is that forex dealers who "book" the trades of at least some of their customers are somehow working against those customers.  Perhaps in the old days of the true bucket shops or even in the more modern world of some smaller forex firms, there were or are those who may have wished their customer’s ill. But to assume that the practice of booking trades of customers is working against those customers is a very naive and simplistic view of what is really happening. 

Many firms that own and operate their own software and are true forex dealers (as opposed to simple brokers–shifting the trades to someone else), often by virtue of filling orders instantly have to take those customer orders into their own book, at least temporarily.  This is often done to facilitate very quick executions of orders.  As these counter positions build up, the dealer often seeks to offset the risk of these positions with their various banks.  Depending on the size of the forex dealer’s capital, the dealer may or may not offset certain levels of these counter positions.  To assume, however, that the dealer is then "working against" the customers with whom they hold non-offset positions is totally ridiculous.  Well-established, reputable forex dealers need never do anything to harm any of their customers to make good profits. 

At GFT, we profit by our customers becoming more successful and growing their accounts larger and larger and bringing more people into the business.  This is why we’ve developed a high-quality series of training courses for our customers, so they can become more knowledgeable and informed traders.

8- Would you like to add something else?
A closely related topic that has been promoted lately by some forex dealers is the notion that they have "no dealing desk."  While it may be true that the firm running such a promotion has no dealing desk itself, it borders on fraud to suggest that no dealing desk is involved in the forex transaction.  Those forex dealers who have no dealing desk are simply passing on the trades to one of the banks they deal with.  That bank, of course, has a dealing desk and handles that transaction the same as any other forex dealer would.  The biggest difference is that when a customer deals with a forex dealer who operates a dealing desk, the customer has the luxury of being able to call that dealing desk to discuss any problems or questions they may have on any of their trades. They can get a quick, informed answer as opposed to attempting to deal with a large bank that is shielded by a forex dealer that has no dealing desk and no intention of letting the customer talk to that bank’s dealing desk.  The main point that customers must understand is that there is always a dealing desk involved in a forex transaction, and any attempt to confuse customers into thinking that there is not is highly dishonest.

Those firms that used to operate as forex dealers and are now operating as forex "brokers" (operating no dealing desk of their own but simply passing on trades to banks) are using a tried and true method of processing orders but may be short-changing their customers as they become a "middle man" for the transaction, placing the customer further away from the dealing desk that actually fills their order.  For small "hit and run" type of trades this may not be much of a problem, but for serious customers doing substantial forex trades and looking for the best in service, dealing with a firm operating a dealing desk staffed by helpful, experienced dealers is a huge advantage. 

Firms such as GFT who operate dealing desks properly can fill thousands and thousands of orders virtually instantly, but also have trained individuals monitoring orders to help customers with any situation.  Properly run dealing desks are simply a higher level of customer service as opposed to an impediment to execution speeds. 

Contrary to popular opinion, when dealing with forex dealer members acting as brokers, customers must realize that their broker makes a portion of the spread that is added on to the dealer spread. And as they are a degree separated from the actual dealing desk where the trade occurs, there is less discretion that the market maker/dealer can have in order acceptance, especially since  there are  additional revenue streams for each order (orders introduced by introducing brokers may also have additional mark-ups applied).  Common side effects experienced by the trader include more trade rejections and generally higher rates of slippage. 

At GFT, customers see and can execute their trades on streaming prices 24 hours a day, almost 6 days a week, directly with a market maker.  On liquid markets, GFT customers have access to trade up to 20 million in notional volume with a single click of a mouse.  Unlike most of our competitors, GFT does not widen spreads during market volatility, due to its interbank dealing relationships and the liquidity that GFT has available during even the most turbulent market conditions. 

Gary Tilkin, President & CEO at Global Forex Trading