Bart Mallon, Esq. – Mallon P.C.
NFA Releases Notice Regarding Forex Registration
As we discussed in our post yesterday about outstanding issues with retail forex regulations, the NFA posted guidance regarding the final retail forex regulations passed by the CFTC earlier this week. In general, the notice answers a few of the questions regarding implementation of the regulations, but many questions are left unanswered.
The central take-aways from the notice below include the following:
- NFA will begin taking registration applications from forex firms on September 2
- Retail forex firms not registered by October 18, 2010 must cease conducting retail forex business until registration is finalized
- Forex only FCMs will need to register as an RFED even though they are already registered as a FCM
- Forex APs will need to pass both the Series 3 and Series 34 exams (with certain exceptions)
- Forex IBs, if guaranteed, can only have a guarantee agreement with one FCM/RFED
The release below is silent on the following issues:
- Disclosure documents for Forex CTAs and CPOs – do these need to be reviewed and approved by the NFA prior to use by the registered forex firm? If so, is the NFA providing expedited review for these forex applications?
- Currently registered CTAs and CPOs who conduct a small amount of retail forex transactions – do APs at these firms also need to take and pass the Series 34 exam? Are there additional items in the NFA online registration system which need to be completed?
- Open positions on October 19, 2010 – what happens if a forex CTA or CPO is not registered by October 19, 2010?
Other questions deal with issues which we will seek clarification from the CFTC – the big open question is whether individuals will be able to open accounts at offshore forex firms.
It is also currently unknown what sort of paperwork or procedures the forex dealers will be requiring from the forex CTAs and CPOs in order to comply with the provisions of the CEA.
The following notice can be found here.
September 01, 2010
NFA to begin accepting registration applications from forex firms and individuals on September 2
The Commodity Futures Trading Commission has issued final forex rules which become effective on October 18, 2010. NFA will begin accepting registration applications from forex firms and individuals beginning Thursday, September 2.
Any retail forex entity that does not complete the registration process by October 18, 2010 will be unable to conduct retail forex business until registration and all necessary approvals and designations are granted.
As part of the reauthorization of the CFTC in May 2008, Congress amended the Commodity Exchange Act to require, with certain exceptions, including a Futures Commission Merchant (FCM) acting primarily or substantially as a traditional FCM, any firm acting as a counterparty to certain retail forex transactions to register as a Retail Foreign Exchange Dealer (RFED).
Consequently, any existing Forex Dealer Member of NFA that is currently registered as an FCM must register as an RFED unless the firm’s business is primarily or substantially that of a traditional FCM. Moreover, even if the firm’s business is primarily or substantially that of a traditional FCM, the firm must access NFA’s Online Registration System (ORS) and request approval as a Forex Firm and designation as a Forex Dealer Member.
The Commodity Exchange Act was also amended to require any individual acting as a forex solicitor, account manager or pool operator to register with the CFTC as Introducing Brokers (IBs), Commodity Trading Advisors (CTAs) or Commodity Pool Operators (CPOs) and become Members of NFA. Also, any Associated Person (AP) soliciting or supervising persons soliciting business on behalf of a forex firm must request approval as a Forex AP.
If you are not currently registered, you must comply with all registration and forex requirements.
If you are currently registered as an IB, CPO, CTA or AP that is conducting forex business, you must still apply for Forex Firm or Forex AP approval.
All individuals who solicit retail off-exchange forex business or who supervise that activity must take and pass two exams. One is the National Commodity Futures Examination (Series 3) and the other is the Retail Off-Exchange Forex Examination (Series 34), a new exam focusing exclusively on forex-related questions.
Individuals who were registered as APs, sole proprietors or floor brokers (FBs) on May 22, 2008 will not need to take the Series 34 exam unless there has been a two-year gap in their registration since that date.
Every approved Forex Firm (RFED, FCM, IB, CPO or CTA) must have at least one principal who is registered as an AP or FB and who is approved as a Forex AP.
In addition, any RFED branch office must have a branch office manager who has taken the Series 30 exam and is an approved Forex AP.
The Commission’s final forex rules do not require Forex Firm IBs to be guaranteed. However, if a Forex Firm IB is guaranteed, the IB can only have one guarantor. In other words, an IB cannot be guaranteed by an FCM for futures business and a different RFED for forex business.
NFA has prepared a “Registration Overview for Retail Foreign Exchange Dealers and Forex IB, CTA and CPO Applicants” that provides additional registration information. You can also find information and guidance on NFA’s website.
Additionally, NFA’s Information Center (800-621-3570) is available from 8:00 a.m. – 5:00 p.m. CT, Monday through Friday.