The End is Near: U.S. Retail Forex Meets It's Biggest Opponent Ever

[Forexwatchman]

I started the year off championing the fight against the narrow-minded bureaucrats of the CFTC who included a proposal to limit spot forex leverage to a ridiculous 10:1 for all U.S. based retail forex trading in an otherwise good intentioned proposal to regulate the growing forex industry in the U.S. The result of such over-regulation was an overwhelmingly negative one in which the CFTC received over 6,000 letters, emails, and faxes disapproving such a proposal. This was the most feedback the CFTC received for anything... ever! And it would appear that the outcry from U.S. traders and brokers has had the effect of silencing any real follow through of enacting the proposal from the CFTC. The last I've been able to gather about the progress of the 10:1 proposal was that the CFTC was reconsidering the limit. Problem handled right? Well...

Now we have an even bigger enemy to U.S. retail forex: President Obama. With the recent passage of the Dodd-Frank Wall Street Reform Act, many traders will be very upset to know that Section 742(c) of the Act states as follows:

“…A person [which includes companies] 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 [emphasis added] 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…”

In other words, this provision will not come into effect UNTIL the CFTC or another eligible federal body issues guidelines relating to the regulation of foreign currency within 90 days of its enactment. The Dodd-Frank Wall Street Reform Act was officially enacted on July 21st, so in other words expect the CFTC to announce their newest proposal or decision within in the next 90 days, or round about October 19th. That's my take on the issue, but I'm curious as to what others have to say.

At this point it's almost a non-issue due to the fact that almost all major U. S. retail brokers have now moved their offices off-shore to prepare for the initial proposal from the CFTC earlier in the year.

As far as what you can do to help solve the issue (if that's even worth pursuing at this point), you can provide insight into how the Act should be enforced to the CFTC directly.

To do so commentary should be forwarded to via email to:
Secretary@www.cftc.gov
Attn: David A. Stawick, Secretary
Commodity Futures Trading Commission
Three Lafayette Center
1155 21st Street, NW
Washington, DC 20581

 

[Pharaoh]

Any updates on this? If over-interpreted, it could be used to ban changing currencies at your local bank.

 

[Forexwatchman]

You're right Pharaoh, it could be interpreted to mean all sorts of bad things. I think the issue I find from posting this same thread on another forum is that after the scare we had earlier in the year with the whole 10:1 leverage proposal, traders have become complacent to just think it's an issue that can easily be resolved by simply relocating their accounts offshore.

The problem with that, and what I am trying to spread the word about, is that if you (being some broker) have US clients, you fall under the CFTC's jurisdiction. Offshore brokers will soon have to decide whether to dump US clients or adopt US rules because believe me, they aren't going to just watch hundreds of millions or possibly billions of U.S. dollars flow offshore due to their (the CFTC's) rulings on how we conduct our trading. Last year FxPro already began dumping US accounts. FXCM UK already issued a notice that foreign IBs will lose commissions from their US clients unless they register with the NFA by March 31st of this year.

So although the NFA themselves have no jurisdiction outside US borders, and yes that is true- except upon their broker members, who will then in turn enforce for them (not doing so is violating their compliance requirements). So they either jump on board this titanic failure in legislation, or they lose their membership!

So it isn't a simple answer of just relocating your account offshore and the problem goes away, far from it. It becomes a much more uncertain thing once these ruling and laws get put into action, which is why i feel I am doing the right thing by at least raising my voice about these issues instead of becoming truly apathetic and letting them slowly take away my right to be a U.S. retail forex trader!

 

[Forexwatchman]

Well it came sooner rather than later, but the final decision has been made as to how the new U.S. Retail forex market will be regulated by the CFTC and current government legislation. Final Decision: 50:1 for all major currencies, and 20;1 for the rest. As I’ve stated in both my articles, this will be the end of U.S. retail forex. It’s been swell!

 

[Pharaoh]

At least until they rule that we aren't qualified to trade retails forex at all. :unhappy:

 

[karlmarx]

My guess would be the NFA will adopt an additional rule similar to the FINRA rule requiring a min account level of 25k to do day trading.