Shipkevich Bitcoin and ICO Attorney
Felix Shipkevich January 13, 2010

Creative Commons License photo credit: epSos.deWashington, DC
– The U.S. Commodity Futures Trading Commission (CFTC) today announced the publication in the Federal Register of proposed regulations concerning off-exchange retail foreign currency transactions. The proposed rules follow the passage of the Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, 122 Stat. 1651, 2189-2204 (2008), also known as the “Farm Bill,” which amended the Commodity Exchange Act in several significant ways. In particular, the Farm Bill:

    • clarified the scope of the CFTC’s anti-fraud authority with respect to retail off-exchange foreign currency transactions; 

    • provided the CFTC with the authority to register entities wishing to serve as counterparties to retail forex transactions as well as those who solicit orders, exercise discretionary trading authority and operate pools with respect to retail off-exchange foreign currency transactions; and

    • mandated minimum capital requirements for entities serving as counterparties to such transactions.

“These proposed rules for retail foreign exchange trading are important steps in implementing the additional consumer protections authorized in the 2008 Farm Bill,” CFTC Chairman Gary Gensler said. “The Commission looks forward to receiving and considering the public’s comments on this important issue.”

Pursuant to this authority, the Commission is proposing a comprehensive scheme that would put in place requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital, and other operational standards. Specifically, the proposed regulations would 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 created by the Farm Bill. Persons who solicit orders, exercise discretionary trading authority and operate pools with respect to retail forex would also be required to register, either as introducing brokers, commodity trading advisors, commodity pool operators, or as associated persons of such entities. As was the case prior to the passage of the Farm Bill, “otherwise regulated” entities such as 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 proposed regulations also 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 would be required to maintain net capital of $20 million plus 5% of the amount, if any, by which liabilities to retail forex customers exceed $10 million. Leverage in retail forex customer accounts would be subject to a 10-to-1 limitation. All retail forex counterparties and intermediaries would be required to distribute forex-specific risk disclosure statements to customers, and comply with comprehensive recordkeeping and reporting requirements.

Comments regarding the proposed regulations may be submitted by any of the means listed in the Federal Register release and should be received by the Commission within 60 days of the date of publication.

From the CFTC
Click here to view the CFTC’s announcement in the Federal Register

42 thoughts on “CFTC Seeks Public Comment on Proposed Regulations Regarding Retail FOREX Transactions

  1. To those of us who trade in the Forex Market for ourselves, these regulations are more harmful then helpful. There is no reason to limit margin accounts to 10 to 1 except for the benefit of banks along with other market makers. All reputable brokers already have in place safeguards for margin calls based on an individual traders real time cash deposit, and they will execute a margin call trade if an individual's trade is dangerously exceeding their ability to cover the trade. By not allowing an individual trader in the U.S. the ability to trade at the standard 100 to 1 leverage, you will turn the fate of currency strength to the market makers, and we will be at the mercy of primarily banking institutions, which have shown such prudent judgement in the past with the mortgage industry. Keep your focus on keeping broker's reputable, but stay away from limiting the margin accounts for individual investors. Unless the entire world will be limiting individual's margin accounts, you will make the citizens of the United States second class investors to the rest of the world. You also will be placing the fate of currency in the hands of everyone else except those of us living, voting, and paying taxes in the United States.

  2. It is quite easy to find reputable offshore Forex brokers these days. It seems that regulators are simply trying to kill small domestic ones. I would like to know what good they believe will come of this new batch of restrictions.

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