CFTC Rules - Broker Q&A for Traders

[AsstModerator]

We've got multiple threads on the issues created by the new CFTC rules. I'm creating this thread specifically for people to ask questions and for brokers to answer and post the information they have.

One note to brokers - this thread is in a non-commercial area of the forums. Please confine your answers to how the CFTC rules will affect clients. You can put your latest special offers in a thread in the Commerce Zone area of the forums. Thanks for understanding.

I'm hoping to get several brokers involved in this thread so that we can all get a broad overview of how this can affect traders. This is mainly for traders in the USA, so far.

 

[Pharaoh]

I've got a few questions.

1. Previously, I'm told that US citizens who were residing outside the US could have accounts at UK Spreadbetting brokers. Do the new CFTC rules affect ALL citizens of the US, or only those residing in the US?

2. Can I get more clarification on what offshore brokers are and are not qualified to serve US citizens/residents?

3. Just how far down the tubes is this regulatory crazy train headed? Are overseas bank accounts next?

 

[ecafyelims]

Clarification

Ruling: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/forexfinalrulefactsheet.pdf

I just want to clarify that I got this right:
Leverage is limited to a maximum of 2% (50:1) for major Forex pairs, and 5% (20:1) for exotic pairs. I'm not sure the definition of exotic, but it doesn't seem to affect me anyway.

This will basically half the available margin for traders accustom to 100:1 leverage like myself, but will only affect your trading method if your margin typically drops under 50%.

All the new rules go into affect October 18, 2010.

 

[Jeremy Viles]

offshore forex

the CFTC and Whitehouse are out of control.
I received an email from IBFX's offshore division in Australia. Even if I start my own offshore corporation they will not allow account at IBFX Australia for offshore corporation with directors, or authorized traders who are US Citizens.
They go on to say that US residents are ok, but not citizens.
So even if you go throught the trouble to set up an offshore corp. some brokers are so scared they still won't hold the account.
This is unreal.

 

[Jeremy Viles]

offshore forex

the CFTC and Whitehouse are out of control.
I received an email from IBFX's offshore division in Australia. Even if I start my own offshore corporation they will not allow account at IBFX Australia for offshore corporation with directors, or authorized traders who are US Citizens.
They go on to say that US residents are ok, but not citizens.
So even if you go throught the trouble to set up an offshore corp. some brokers are so scared they still won't hold the account.
This is unreal.

here's the email from IBFX
Dear Jeremy,



7. An entity that is formed in a country other than the USA with directors/owners/authorized persons who are citizens the USA- No
8. An entity that is formed in a country other than the USA with directors/owners/authorized persons who are residents of the USA - Yes

Regards

Veronica A.



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I have a corporation in Hong Kong may I open an account for this corporation with your Australia offices.

Please advise.

Jeremy

 

[ecafyelims]

IBFX

here's the email from IBFX
Dear Jeremy,



7. An entity that is formed in a country other than the USA with directors/owners/authorized persons who are citizens the USA- No
8. An entity that is formed in a country other than the USA with directors/owners/authorized persons who are residents of the USA - Yes

Regards

Veronica A.



-----------------------------------------------------------------

I have a corporation in Hong Kong may I open an account for this corporation with your Australia offices.

Please advise.

Jeremy

Jeremy, you always have the option to denounce your citizenship (but still live here)

 

[Pharaoh]

Not all countries automatically follow the rules laid down by other countries.

What happens if a broker that is properly licensed and regulated somewhere else decides, in conjunction with their regulator, that it's ok to provide US clients the exact same services they offer other clients no matter what the CFTC says? Other than fiscal blackmail by the US government, will the CFTC be able to prevent this?

 

[ecafyelims]

Not all countries automatically follow the rules laid down by other countries.

What happens if a broker that is properly licensed and regulated somewhere else decides, in conjunction with their regulator, that it's ok to provide US clients the exact same services they offer other clients no matter what the CFTC says? Other than fiscal blackmail by the US government, will the CFTC be able to prevent this?

As far as I can tell, it isn't illegal for U.S. citizens to participate in a non-CFTC broker, so I don't see any problem with it. So far, my broker hasn't announced any new limitations. Although, the new limitations won't directly affect my trading, I still hope they won't be pushed on me.

 

[Jason Rogers]

I've got a few questions.

1. Previously, I'm told that US citizens who were residing outside the US could have accounts at UK Spreadbetting brokers. Do the new CFTC rules affect ALL citizens of the US, or only those residing in the US?

2. Can I get more clarification on what offshore brokers are and are not qualified to serve US citizens/residents?

3. Just how far down the tubes is this regulatory crazy train headed? Are overseas bank accounts next?

Hi Pharaoh,

1. The CFTC rules will only affect traders that list their residency as being in the United States. So a US citizen residing in Europe for example would not be impacted if the European address is listed on the account (speaking in regards to FXCM's procedure).

2. According to the Dodd-Frank Bill, a broker acting as the counterparty to a US retail forex transaction will have to be registered as either an FCM or RFED. So even if the broker doesn't have a location in the US, they would still have to register with the CFTC in order to act as the counterparty if it involves a retail forex transaction with a US resident.

I notice in another post you asked how the CFTC plans to enforce this. My understanding is that the CFTC plans to enforce this through cooperation with overseas regulators where there's a memorandum of understanding. The CFTC has some details on their cooperative agreements with overseas regulators here Memoranda of Understanding - CFTC . Best example I can think of a regulator enforcing this type of rule is the British Columbia Securities Commission where they have successfully restricted foreign brokers from accepting BC residents if the broker is not regulated by the BCSC. We're already seeing some brokers who were initially stating they would continue accepting US residents after Oct. 18th start to reverse course.

I guess the million dollar question is how the CFTC plans to enforce the rules if there are no cooperative agreements. Along these lines, most likely litigation similar to how online gambling website based offshore ran into trouble and had accounts frozen. But we'll have to see how this plays out after October 18.

-Jason

 

[Jason Rogers]

As far as I can tell, it isn't illegal for U.S. citizens to participate in a non-CFTC broker, so I don't see any problem with it. So far, my broker hasn't announced any new limitations. Although, the new limitations won't directly affect my trading, I still hope they won't be pushed on me.

That's a good observation. The rules don't put the restriction on the trader, they put the restriction on the counterparty (broker). So CFTC will most likely go after the broker for violating the provision rather than the trader.