NFA "Respectfully" Criticizes SEC Capital Requirements

In a recent letter to the Commodity Futures Trading Commission the National Futures Association commented on proposed further increases in net capital requirements for Futures Commission Merchants and Introducing Brokers.

Whilst the NFA:

Recognizes that the recent financial crisis has justifiably heightened concerns among all regulators that financial institutions have adequate capital appropriate for their specific business risk.

they also say that:

We are very concerned about the current suggestion of increasing the ANC requirements for FCM/BDs by arbitrarily combining the CFTC and SEC capital requirements. While this approach may be appealing in its structure, it is a step backward and embraces a simplistic capital approach rather than being reflective and offering an approach that adequately measures specific firm risk.

They also seem to suggest that Barack Obama's new FRR proposals might ultimately result in this "simplistic approach" being preferred to a "risk-based capital approach":

The Commission's actions in the capital area stand in stark contrast to the SEC, which still has overly simplistic capital requirements that do not truly account for a firm's specific risk. As you are aware, the Obama Administration's June 2009 Financial Regulatory Reform ("FRR") proposal calls for a study regarding the harmonization of the securities and commodities regulatory regimes. NFA strongly believes that the CFTC's risk-based capital approach should be the prevailing capital structure that emerges after that study.

The NFA conclude by saying that:

We are confident the Commission will engage in a careful analysis and reach a result that protects customers and the futures markets without placing an undue burden on FCMs.

Let us hope that for all sorts of reasons the NFA's confidence is not misplaced. If you are so inclined perhaps a bit of praying might also not go amiss?