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NFA Issues NTM Regarding Retail Forex

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In a Notice to Members (NTM) issued today, the NFA provides guidance to certain players in the retail forex markets.  The NTM discusses some issues which the NFA levitra online cheap has received inquiries about.  The guidance by the NFA is based on consultations with the CFTC staff.

The NFA has done a nice job of helping forex managers with the registration process and has also held a forex registration and compliance workshop recently.  The full notice is reprinted below.

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Notice to Members I-10-21

October 13, 2010

NFA offers guidance on CFTC’s final forex regulations

The Commodity Futures Trading Commission’s (CFTC) final Forex regulations are effective on October 18, 2010. NFA staff has received a number of inquiries from Members seeking further guidance and clarification on certain requirements. Based on further consultation with CFTC staff on Friday, October 8th, this Notice provides additional guidance on the following areas:

Risk Disclosure Statement Required by CFTC Regulation 5.5

CFTC Regulation 5.5 prohibits FCMs, RFEDs, and in the case of an introduced account, IBs from opening a retail Forex account until the FCM, RFED or IB has provided the customer with the required disclosure statement, along with the most recent quarterly customer account performance information, and obtained a signed acknowledgement of receipt of the disclosure document from the customer. Firms are not required to provide this disclosure statement to, or obtain the disclosure document acknowledgement from, a customer who opened an account prior to October 18, 2010 (existing customers). Additionally, firms are not required to provide the most recent quarterly customer account performance information to existing customers unless the customer requests the information.

Qualifying Institutions for Holding Assets Equal to Retail Forex Obligation

CFTC Regulation 5.8 identifies the financial entities that may be used to hold assets equal to the total amount owed to U.S. customers for Forex transactions. Assets may only be held in the U.S. or a money center country defined in Regulation 1.49. Qualifying institutions in the U.S. are limited to U.S. regulated banks or trust companies, SEC registered broker-dealers that are also members of FINRA and CFTC registered FCMs that are also members of NFA. Qualifying Institutions in a money center country are limited to banks or trust companies with regulatory capital in excess of $1 billion; broker-dealer or FCM equivalents with regulatory capital in excess of $100 million; and FCMs registered with the CFTC and members of NFA. RFEDs are not a qualifying entity for holding these assets. However, pursuant to CFTC Regulation 5.7, funds held at an RFED may be included as a current asset for minimum net capital purposes.

IB, CPO and CTA Registration

Otherwise regulated entities set forth in Section 2(c)(2)(B)(ii)(II)(aa), (bb), (ee) or (ff) of the Commodity Exchange Act do not have to be registered in the appropriate capacity with the CFTC in order to solicit retail Forex orders, manage retail Forex accounts or operate a retail Forex pool. This includes an otherwise regulated entity, such as a broker-dealer, that introduces retail Forex business to an FCM or RFED.

Other Registration Issues

Every firm that is required to be registered as an FCM, RFED, IB, CPO or CTA in connection with its Forex activity must be approved by NFA as a Forex firm. NFA Members are prohibited from engaging in retail Forex transactions with these firms unless the firm has received this designation. In addition, Forex firms must have at least one principal who is registered as an Associated Person (AP) and is approved as a Forex AP. All individuals who solicit retail Forex business or who supervise that activity must have taken and passed two exams — the National Commodity Futures Examination (Series 3) and the Retail Off Exchange Forex Examination (Series 34), which is a new exam focusing exclusively on Forex-related questions. However, individuals who were registered as APs, sole proprietors or floor brokers on May 22, 2008, do not need to take the Series 34 exam unless there has been a two year gap in their registration since that date.

Anyone needing additional information on these regulations should contact Sharon Pendleton (312-781-1401 or [email protected]) or Lauren Brinati (312-781-1215 or [email protected]).

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Bart Mallon, Esq. runs the hedge fund law blog and provides forex registration and compliance services to forex managers through Cole-Frieman & Mallon LLP.  He can be reached directly at 415-868-5345.

Clarification on CFTC Final Retail Forex Regulations Forthcoming

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Bart Mallon, Esq.
(www.forexregistration.com)

NFA to Issue Guidance on Regulations

Now that the CFTC has finalized the retail Forex regulations the Forex community will now set forth to figure out exactly what will be happening next.  Today I called the NFA to get clarification on a couple of items with respect to the new regulations and I was surprised to hear that the NFA is planning to release guidance on the new regulations tomorrow.  The representative that I spoke with did not know much about tomorrow’s release.  Below I discuss the issues which were the subject of the conversation as well as some general thoughts and questions that we will be working on over the next 6-8 weeks with respect to the new regulations.

Registration Required by October 18, 2010

The central question I had was whether managers (forex CTAs, CPOs) and introducing brokers would need to be actually registered (i.e. completes fingerprints and forex exams) by the time that the regulations are effective.  The NFA representative that I spoke with said that yes, forex managers would need to be registered by October 18, 2010.  This means that firms who provide investment advice with respect to retail forex will need to cease providing such advice unless the managers are registered with the NFA.  Even if a firm is registered, no APs of the firm may provide advice with respect to retail forex unless such APs have passed the Series 34 exam.  However, APs which were registered as such with the NFA on May 22, 2008 do not have to pass the Series 34.

Logistical Issues

If this is the case — and we will find out tomorrow — the requirement for forex managers and IBs to be registered by October 18 presents a number of logistical issues.

The first issue is that these managers will need to have passed both the Series 3 and Series 34 exams.  As many forex managers are not currently APs of a CFTC registered firm, they will generally not have the Series 3 exam.  The Series 3 exam has nothing to do with retail forex trading so persons without futures/commodities industry experience will need to take special care to prepare accordingly.  Managers will also need to have passed the Series 34 exam.  Studying for and passing both of these exams in the next 6 weeks or so is going to be very difficult.

The second issue will be whether the NFA staff can handle the increased amount of applications from forex managers.  The NFA has previously said that they specifically updated their systems to handle an increase in applications (because of forex registration requirements).  However, when I asked the NFA representative whether the NFA has hired additional staff to deal with the extra registrations, the NFA representative could not answer me – I suspect the answer is “no” the NFA has not hired additional examiners.

A second part of this issue involves the review and approval of disclosure documents.  Both forex CTAs and forex CPOs will need to have their disclosure documents reviewed by the NFA.  While registration can be completed fairly quickly if a manager has completed the forex exams and the fingerprint requirement, the disclosure document review process is not short.  Typically the review process will last anywhere from 4-8 weeks from the time that the disclosure documents are submitted to the NFA for review (which cannot be sooner than the date a firm is registered).  [Note: it is most common for the review process to take around 6-8 weeks depending on the nature of the forex firm.]  This means that even if a manager is able to complete the registration process by October 18, it is likely that the manager would not be able to conduct business if the disclosure documents were not approved, which could probably not happen by October 18 even if the manager completed registration tomorrow!  It is unclear whether the CFTC and NFA recognize this reality or whether they will grant an exception for managers who have made a good faith effort to comply with the registration requirements.

[Note: the NFA takes much longer to approve the applications for forex IBs – genrally it will take anywhere from 4-8 months for a forex IB to become registered.]

Other Issues

There are a number of other questions and issues which have arisen.  The following are some questions we are getting and our current responses:

How long will 100:1 leverage (majors) and 25:1 leverage (non-majors) be applicable? The NFA is now tasked with creating new leverage levels which cannot be exceed 50:1 (majors) or 20:1 (non-majors).  It would make sense if the current leverage levels remain in force until October 18, 2010.  The NFA is likely to propose rules with respect to leverage prior to October 18.

How will the Series 34 exam change? The current Series 34 exam is based on current NFA rules and bylaws which are currently in flux after the CFTC final forex regulations.  Test takers should note that certain questions may be asked on the exam which do not comport with current law and other rulemaking.  The NFA should be addressing this issue shortly.

Can managers manage accounts from the U.S. for only offshore investors at offshore forex dealers without registration? Probably not.  We are still trying to figure out how the final regulations deal with this issue.

Can traders move their forex trading to SEC registered broker dealers to get higher leverage? Probably not.  While the SEC will have jurisdiction over broker-dealers who want to offer retail forex, it is unlikely that the SEC will (under its own rulemaking) allow more leverage than the CFTC.  The SEC would likely defer to the CFTC with respect to the leverage requirements.  Also, FINRA recently proposed a leverage requirement for its member firms which was much lower than the current CFTC regulations.

Can individuals create accounts (either individually or through offshore companies) at offshore forex dealers in order to access higher leverage overseas? Probably not.  The major intent of Dodd-Frank and the final CFTC regulations was to keep U.S. citizens from trading with overseas brokers.  It is likely that the CFTC and NFA are going to take a hard stance on this issue.

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Cole-Frieman & Mallon LLP. is a law firm and provides legal support and forex registration and compliance services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

CFTC Releases Final Retail Forex Rules

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New Regulations Effective as of October 18, 2010

The final retail Forex regulations (which requires registration for forex CTAs, CPOs and IBs) have been published in the Federal Register.  The final regulations will be effective as of October 18, 2010.  The regulations were adopted essentially as written with the execption of two major issues:

  • Leverage – while the proposed rules called for a maximum leverage of 10:1, the final rules allow the NFA to determine the margin requirements for the currencies within a defined set of CFTC parmeters.  Currently the parameters include 50:1 leverage for major currencies and 20:1 leverage for all other currencies.
  • Forex Introducing Brokers – the proposed rules called for all forex introducing brokers to be guaranteed by a single FCM or RFED.  The final rules allow a forex introducing broker to be either guaranteed or independent, consistent with other regulated futures IBs.

We have not yet had a chance to talk with the NFA or the CFTC about the new rules, but we recommend that all groups who may have to register with the NFA to begin the forex registration process as soon as possible (which includes taking the Series 34 exam) because of the large amount of applications the NFA will receive because of the final regulations.

The full CFTC press release is reprinted below.

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August 30, 2010

CFTC Releases Final Rules Regarding Retail Forex Transactions

Washington, D.C. – The U.S. Commodity Futures Trading Commission (CFTC) today announced the publication in the Federal Register of final regulations concerning off-exchange retail foreign currency transactions. The rules implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Food, Conservation, and Energy Act of 2008, which, together, provide the CFTC with broad authority to register and regulate entities wishing to serve as counterparties to, or to intermediate, retail foreign exchange (forex) transactions.

“These rules of the road will help protect the American public in the largest area of retail fraud that the CFTC oversees: retail foreign exchange,” CFTC Chairman Gary Gensler said. “All CFTC registrants involved in soliciting and selling retail forex contracts to consumers will now have to comply with rules to protect the investing public. This is also the first final rule that the Commission has published to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act. We look forward to publishing additional rules to protect the American public.”

The final forex rules put in place requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital and other business conduct and operational standards. Specifically, the regulations require the registration of counterparties offering retail foreign currency contracts as either futures commission merchants (FCMs) or retail foreign exchange dealers (RFEDs), a new category of registrant. Persons who solicit orders, exercise discretionary trading authority or operate pools with respect to retail forex also will be required to register, either as introducing brokers, commodity trading advisors, commodity pool operators (as appropriate) or as associated persons of such entities. “Otherwise regulated” entities, such as United States financial institutions and SEC-registered brokers or dealers, remain able to serve as counterparties in such transactions under the oversight of their primary regulators.

The final rules include financial requirements designed to ensure the financial integrity of firms engaging in retail forex transactions and robust customer protections. For example, FCMs and RFEDs are required to maintain net capital of $20 million plus 5 percent of the amount, if any, by which liabilities to retail forex customers exceed $10 million. Leverage in retail forex customer accounts will be subject to a security deposit requirement to be set by the National Futures Association within limits provided by the Commission. All retail forex counterparties and intermediaries will be required to distribute forex-specific risk disclosure statements to customers and comply with comprehensive recordkeeping and reporting requirements.

The final rules become effective October 18, 2010.

Last Updated: August 30, 2010

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Cole-Frieman & Mallon LLP is a forex law firm and provides legal support and forex registration services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

Dodd-Frank Establishes New Laws Regarding Spot Commodities and Spot Forex

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The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”) has changed a number of laws in all of the securities acts including the Commodity Exchange Act.  Two specific changes deal with certain transactions in commodities on the spot market.  Specifically, Section 742 of the Act deals with retail commodity transactions.  In this section, the text of the Commodity Exchange Act is amended to include new Section 2(c)(2)(D) (dealing with retail commodity transactions) and new Section 2(c)(2)(E) (prohibiting trading in spot forex with retail investors unless the trader is subject to regulations by a Federal regulatory agency, i.e. CFTC, SEC, etc.).  According to a congressional rulemaking spreadsheet, these are effective 180 days from the date of enactment.

We provide an overview of the new sections and have reprinted them in full below.

New CEA Section 2(c)(2)(D) – Concerning Spot Commodities (Metals)

The central import of new CEA Section 2(c)(2)(D) is to broaden the CFTC’s power with respect to retail commodity transactions.  Essentially any spot commodities transaction (i.e. spot metals) will be subject to CFTC jurisdiction and rulemaking authority.  There is an exemption for commodities which are actually delivered within 28 days.  While the CFTC wanted an exemption in which commodities would need to be delivered within 2 days, various coin collectors were able to lobby congress for a longer delivery period (see here).

It is likely we will see the CFTC propose regulations under this new section and we will keep you updated on any regulatory pronouncements with respect to this new section.

New CEA Section 2(c)(2)(E) – Concerning Spot Forex

The central import of new CEA Section 2(c)(2)(E) is to regulate the spot forex markets.  While the section requires the CFTC to finalize regulations with respect to spot forex (which were proposed earlier in January), it also, interestingly, provides  oversight of the markets to other federal regulatory agencies such as the CFTC.  This means that in the future, different market participants may be subject to different regulatory regimes with respect to trading in same underlying instruments.  A Wall Street Journal article discusses the impact of this with respect to firms which engage in other activities in addition to retail forex transactions.  The CFTC’s proposed rules establish certain compliance parameters for retail forex transactions, requires registration of retail forex managers and requires such managers to pass a new regulatory exam called the Series 34 exam.  We do not yet know whether the other regulatory agencies will adopt rules similar to the CFTC or if they will write rules from scratch.

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CEA Section 2(c)(2)(D)

‘‘(D) RETAIL COMMODITY TRANSACTIONS.—

‘‘(i) APPLICABILITY.—Except as provided in clause (ii), this subparagraph shall apply to any agreement, contract, or transaction in any commodity that is—

‘‘(I) entered into with, or offered to (even if not entered into with), a person that is not an eligible contract participant or eligible commercial entity; and

‘‘(II) entered into, or offered (even if not entered into), on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis.

‘‘(ii) EXCEPTIONS.—This subparagraph shall not apply to—

‘‘(I) an agreement, contract, or transaction described in paragraph (1) or subparagraphs (A), (B), or (C), including any agreement, contract, or transaction specifically excluded from subparagraph (A), (B), or (C);

‘‘(II) any security;

‘‘(III) a contract of sale that—

‘‘(aa) results in actual delivery within 28 days or such other longer period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets for the commodity involved; or

‘‘(bb) creates an enforceable obligation to deliver between a seller and a buyer that have the ability to deliver and accept delivery, respectively, in connection with the line of business of the seller and buyer; or

‘‘(IV) an agreement, contract, or transaction that is listed on a national securities exchange registered under section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)); or

‘‘(V) an identified banking product, as defined in section 402(b) of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C.27(b)).

‘‘(iii) ENFORCEMENT.—Sections 4(a), 4(b), and 4b apply to any agreement, contract, or transaction described in clause (i), as if the agreement, contract, or transaction was a contract of sale of a commodity for future delivery.

‘‘(iv) ELIGIBLE COMMERCIAL ENTITY.—For purposes of this subparagraph, an agricultural producer, packer, or handler shall be considered to be an eligible commercial entity for any agreement, contract, or transaction for a commodity in connection with the line of business of the agricultural producer, packer, or handler.’’.

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CEA Section 2(c)(2)(E)

‘‘(E) PROHIBITION.—

‘‘(i) DEFINITION OF FEDERAL REGULATORY AGENCY.—In this subparagraph, the term ‘Federal regulatory agency’ means—

‘‘(I) the Commission;

‘‘(II) the Securities and Exchange Commission;

‘‘(III) an appropriate Federal banking agency;

‘‘(IV) the National Credit Union Association; and

‘‘(V) the Farm Credit Administration.

‘‘(ii) PROHIBITION.—

‘‘(I) IN GENERAL.—Except as provided in subclause (II), a person described in subparagraph (B)(i)(II) for which there is a Federal regulatory agency shall not offer to, or enter into with, a person that is not an eligible contract participant, any agreement, contract, or transaction in foreign currency described in subparagraph (B)(i)(I) except pursuant to a rule or regulation of a Federal regulatory agency allowing the agreement, contract, or transaction under such terms and conditions as the Federal regulatory agency shall prescribe.

‘‘(II) EFFECTIVE DATE.—With regard to persons described in subparagraph (B)(i)(II) for which a Federal regulatory agency has issued a proposed rule concerning agreements, contracts, or transactions in foreign currency described in subparagraph (B)(i)(I) prior to the date of enactment of this subclause, subclause (I) shall take effect 90 days after the date of enactment of this subclause.

‘‘(iii) REQUIREMENTS OF RULES AND REGULATIONS.—

‘‘(I) IN GENERAL.—The rules and regulations described in clause (ii) shall prescribe appropriate requirements with respect to—

‘‘(aa) disclosure;

‘‘(bb) recordkeeping;

‘‘(cc) capital and margin;

‘‘(dd) reporting;

‘‘(ee) business conduct;

‘‘(ff) documentation; and

‘‘(gg) such other standards or requirements as the Federal regulatory agency shall determine to be necessary.

‘‘(II) TREATMENT.—The rules or regulations described in clause (ii) shall treat all agreements, contracts, and transactions in foreign currency described in subparagraph (B)(i)(I), and all agreements, contracts, and transactions in foreign currency that are functionally or economically similar to agreements, contracts, or transactions described in subparagraph (B)(i)(I), similarly.’’.

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Cole-Frieman & Mallon LLP provides legal support and forex registration services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

New Forex Regulations: Overview of Public Comments

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Leverage, Inaccessibility for Smaller Traders, and Offshore Threat are Focus of Public Comments

As we’ve discussed in related posts, the CFTC has proposed rules regulating the off-exchange spot forex industry (see Retail FOREX Registration Regulations Proposed).  The CFTC has requested comments from the public and there are currently about 100 public comments on CFTC’s website written in response to the new rule. The comments mainly focus on:

  • Leverage reduction rule (approx. 75/100 comments)
  • Forex industry becoming inaccessible to smaller traders (approx. 35/100 comments)
  • Threat of investors moving their money to offshore firms (approx. 25/100 comments)
  • Opposition to government interference/regulation (approx. 20/100 comments)

[Note: over the weekend the CFTC published some of the backlog of comments it received.  Much of this article was written prior to review of these extra comments (which total approximately 3,663).  We will provide an update on such comments in the future.]

To view all of the comments, click here.

The following is our summary of the comments which have been made thus far.

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Leverage Reduction

Approximately 75 of the 100 comments mention a strong or very strong opposition to the new leverage proposal of 10:1. The issue with a reduction of leverage to 10:1 is that investors will have to invest much more money in order to trade what they can currently trade with less capital. Comments regarding leverage include phrases like “strongly object”, “terrible idea”, “unintelligent”, and “strongly oppose”.  The majority opinion is that people should have the freedom and the choice to trade with a higher amount of leverage, and that the federal government’s attempts to lower leverage to 10:1 are “unnecessary” and “intrusive”. John Yeatman Jr. writes,

Please DO NOT reduce leverage in US Forex trading to 10:1…THIS WOULD HAVE A MAJOR IMPACT ON TENS OF THOUSANDS OF TRADERS AND THEIR FAMILIES WHO RELY ON 100:1 LEVERAGE AVAILABILITY TO SUPPORT THEIR FAMILY AND THIS ECONOMY. Please do your part in helping to keep this country great and it’s [sic] freedoms true BY NOT ALLOWING ANYTHING LESS THAN 100:1.

Other comments regarding the leverage proposal include:

  • … strongly objects to new leverage of 10:1
  • … proposed reduction not consistent with futures, which allow a significantly higher leverage
  • … virtually no flexibility trading at 10:1 leverage unless trader has gigantic account balance
  • …reduction in leverage not fair to public…bad for America
  • … new leverage line “out of line with general idea of protecting consumers”
  • …limiting leverage to 10:1 is “a bad idea”
  • …current leverage limit is “more than enough”
  • … CFTC is “unintelligent” to change leverage to 10:1
  • … terrible idea to lower leverage
  • … leverage change is “perversion of the free markets”
  • …leverage restriction “grave injustice” for many who work to secure the American dream of prosperity for themselves and families
  • …leverage limits would delay achievement of financial independence
  • …leverage not dangerous; misuse is
  • …leverage decrease will kill forex business and worsen economic situation in states and worldwide
  • …amount of leverage needs to be at discretion of investors

Smaller Traders

Another argument is that lower leverage will making trading inaccessible for smaller traders but leave the door wide open for larger institutions, since lower leverage requires higher margin (meaning that more money needed to be invested in order to trade). Comments regarding this proposed rules potential affect on smaller traders include:

  • …will stamp out small-time investor
  • …drive smaller guys out of market or offshore
  • …anything lower would be insane for small-time traders
  • …gets rid of investors with small capital so rich can stay rich and poor can stay poor
  • …pushes out small-time investor
  • …denies small trader opportunity
  • …disparate and unintended impact on small traders with lower capital
  • …leave the small, independent traders alone
  • …small businesses are heart of US economy
  • …all small-scale actors will be stifled
  • …10:1 leverage will have unintended consequence of locking out hundreds or thousands of small traders
  • …quit treating the small guy like an idiot
  • …are you trying to allow only rich to trade forex?

Government Interference/Regulation

Many of the comments suggest anger with the government for interfering too much with the forex industry. Michael Thomas writes,

I do not live here in this “free” society to have someone from the government babysitting me. The message that your proposed rules send is that 1) we are not free to make our own choices. 2) The federal government believes that we the general public are too stupid to make decisions for ourselves….I don’t need you, or do I want you getting in the way of my being able to trade as I wish in the United States of America.

Other comments regarding an opposition to increased government interference include:

  • …don’t add more government
  • …not intention of our ancestors to create government which controlled/regulated all aspects of citizens’ lives
  • …the government has no right to control my ability to make profit
  • …unnecessary for Federal government to regulate against individual’s ability to take risks
  • …don’t need government protection; we’re adult traders
  • …not responsibility of government to take away choice from consumers
  • …”big brother” attempt to protect people from “evil” traders and forex hedge funds
  • …stay out of trying to run my personal life

Offshore Threat

In at least 25 of the comments, the public is arguing that the new rules, specifically lower leverage, will drive traders offshore to overseas brokers who may or may not be regulated. Further, a major argument is that the forex industry in the United States will essentially cease altogether as a result of traders moving their forex activities offshore. Comments regarding this offshore threat include:

  • …will send business to London and unregulated offshore markets
  • …consumers will take accounts offshore
  • …will drive smaller guys out of markets entirely or to offshore, unregulated brokers
  • …when traders move accounts offshore, CFTC and NFA will have no control of clients’ trading
  • …I’ve already moved my account offshore
  • …people will do business with offshore brokers

Government Regulation

In terms of the new regulation proposal as a whole, some people support more industry regulation while others are against the idea entirely. Bradford Smith writes,

I feel that regulation of firms is needed…regulation is needed to help people understand the risks such as risk disclosure. [Regulating] the  retail forex market in a similar fashion to how commodities and futures are regulated is a good idea. Stopping companies from trading against their clients is a high priority issue that needs to be stopped.

John M. Bland, on the other hand, who views the proposal as “unfair”,  writes,

…the CFTC has done a lot in recent years to correct many of the problems in the industry…this decision is unfair and anti-competitive.

Other comments regarding opposition to the proposal and/or government interference include:

  • …new rules will destroy US financial firms business and lead to loss of thousands of jobs during the worst economy in decades
  • …regulation should be aimed at encouraging economic growth and innovation vs. restricting it
  • …against proposal
  • …how did forex regulation get in the Farm Bill?
  • …whoever initiated proposal has no knowledge of forex…this rule is utter nonsense…rules for forex in the USA are already quite strict
  • …you are busybody bureaucrats with intrusive minds…you are interested in only one thing: bureaucratic power and complete control of every microscopic aspect of life…you are monsters
  • …rules will harm people who make an honest living trading currency
  • …important to educate and inform, not regulate and ban
  • …proposal is a disaster-in-warning for traders
  • …if it ain’t broke, don’t fix it
  • …proposal is lunacy-communist-legislation
  • …I do not support the proposal…proposal closes doors for forex investors and will make forex market accessible to financial institutions only
  • …vehemently against new, narrow-sighted legislation

Agreement/Disagreement with Proposal

Many of the comments discuss that education about forex and trading risk is the best solution. On a similar note, many traders expressed the fact that anyone who trades in the forex market is aware of the inherent risks, so people who decide to trade are willing to take these risks. There is a general consensus that it is the individual’s, and not the government’s, responsibility to evaluate the level of risk that s/he is willing to take. Remember, higher leverage will be reflected in both your profits and your losses. Thus, if you have high leverage and profit, you will profit a lot more than if your trading had not been leveraged. But the same goes for losses; if you lose, you will lose a lot more based on the higher leverage.

Conclusions Thus Far

The biggest concern thus far is the proposed reduction in leverage to 10:1. Almost every comment mentioned a strong opposition to this rule. Furthermore, most people seem to be concerned that the new regulations will significantly decrease forex activity in the US—if not kill it off—and drive most investors overseas to offshore firms. We will continue to monitor comments received until the March 22 due date. Please leave us a comment below with your feedback. Should you feel inclined, you may submit your own comment to the CFTC through the methods listed above.

To view CFTC’s proposed rules, click here.

How to Comment

Comments must be received by March 22, 2010 and can be submitted the following ways:

  • Through the Federal eRulemaking Portal: http://www.regulations.gov/search/index.jsp. Follow the instructions for submitting comments.
  • By e-mail: [email protected]. Include “Regulation of Retail Forex” in the subject line of the message.
  • By fax: (202) 418-5521.
  • By mail: Send to David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street, NW., Washington, DC 20581.
  • Courier: Same as Mail above.

(Note that all comments received will be posted without change to http://www.cftc.gov, including any personal information provided.)

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Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog and provides forex registration services to forex managers. Mr. Mallon also runs the Forex Law Blog.  He can be reached directly at 415-868-5345.

Discussion with CFTC Regarding Forex Registration

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No New Information on Forex Regulations

I have been getting more and more questions regarding forex registration and unfortunately I have not had much to say because there has been little information coming from the CFTC.  The NFA has done a good job of anticipating what those rules will generally look like, but the NFA (like us) must wait for the CFTC to propose (and then adopt) regulations requiring the registration of forex managers.  Accordingly any preliminary guidance from the NFA should be taken as that – preliminary guidance.  The fact that the regulations are coming obviously puts pressure on legal professionals and forex managers alike as we all try to figure out what will need to be done, when and how.

For this reason I have been calling the CFTC to try to figure out when we might hear something.  After calling the CFTC daily for over a week now, today I finally received a call back from a representative of the CFTC’s Division of Clearing and Intermediary Oversight.  Unfortunately, the representative was as tight-lipped about the future regulations as the CFTC has been up to this point.

During the conversation, I asked several questions and did not receive any responses other than what you would expect from a government agency.  The gist of the conversation was that the CFTC is working on the regulations and the reason that it is taking so long is that there are many aspects to the regulations which must be thoroughly reviewed be many different members and parts of the CFTC.   It sounded like the regulations could be quite detailed – the representative stated that it is not just simply these managers with this amount of assets must register, that the regulations will be comprehensive.  Another issue which remains unanswered is whether there will be exemptions from the registration provisions, similar to the current CPO exemptions and CTA exemptions from registration.

So with that being said, there is not much new to report.  Forex managers are still in a bit of a limbo until the CFTC promulgates the proposed regulations.  Until that happens it would be wise for forex managers to consider getting ready for registration by discussing the issue with a forex attorney.  Managers may also decide to move forward and begin taking the Series 3 exam and the Series 34 exam.  Managers (especially forex hedge fund managers) are especially encouraged to talk with their attorney about potential registration requirements under their state commodity codes – I will be posting more on this issue tomorrow.

I know this does not tell you very much, but please feel free to contact me if you have any specific questions or if you would like to find out more about forex CPO, CTA or Introducing Broker registration.

For more articles related to forex law and registration, please visit our forex hedge fund articles page.

NFA Continues to Pursue Forex Regulation for Current Forex Dealer Members

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Two new releases indicate that the NFA is serious about regulating the off-exchange foreign currency markets

On our sister website, www.forexlawblog.com, we have detailed the continued regulatory actions by the NFA with regard to the current regulation of the off-exchange forex markets.  The two notices, described in further detail below, apply to Forex Dealer Member and their interactions with their clients. While the CFTC has been slow to promulgate rules regarding the expected new Forex regulations, the NFA has acted swiftly and addressed many important issues.  However, forex managers should still get ready for coming forex regulations – a collegue of mine has recently discussed forex registration with a CFTC compliance person and that person expects that proposed rules will be promulgated within the first quarter of next year.  As always, stay tuned as we will continue to stay on top of this issue.

A summary of the two NFA actions is included below.  Continue reading →