Off-Exchange Forex Regulation - Comment Letters

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Dodd-Frank Timeline, Off Exchange Retail Foreign Exchange Transactions, CFTC
Proposal Date Final Rule Issue Effective Date
January 20, 2010 September 10, 2010 October 18, 2010
Dodd-Frank Timeline, Retail Foreign Exchange Transactions, OCC
Proposal Date Final Rule Issue Effective Date
April 22, 2011 July 14, 2011 July 15, 2011
Dodd-Frank Timeline, Retail Foreign Exchange Transactions, FDIC
Proposal Date Final Rule Issue Effective Date
May 10, 2011 July 8, 2011 July 15, 2011
Dodd-Frank Timeline, Retail Foreign Exchange Transactions, Federal Reserve
Proposal Date Comment Deadline Final Rule Issue
July 28, 2011 October 11, 2011 April 9, 2013

The Dodd-Frank Act mandates that the CFTC will have jurisdiction over retail foreign exchange transactions, except in the case of entities which fall under the authority of one of another regulatory agency ("Prudential Regulator") such as the Office of the Comptroller of the Currency, Treasury (OCC), the Federal Reserve System (Fed), the Federal Deposit Insurance Corporation (FDIC), or other prudential regulator. Each regulator has been required to proposed rules and rule changes to address retail forex transactions.

CFTC Off-Exchange Forex Rule[edit]

The CFTC issued its final rule on retail forex transactions on September 18, 2010, and went into effect on October 18, 2010. In writing the final rule, the commission took into consideration the 9000 comment letters it received from the initial proposal.<ref>Comments for Proposed Rule 75 FR 3281. CFTC. Retrieved on June 23, 2011.</ref> Overall, the bulk of the comments concerned four of the proposed rules:

  • Proposed Regulation 5.9, which would impose a 10 to 1 leverage limitation on retail forex transactions.
  • Proposed Regulation 5.18(h), which would require each IB that solicits or accepts off-exchange retail forex orders to enter into a guarantee agreement with the FCM or RFED to which the IB introduces the forex transactions
  • Proposed Regulation 5.18(j), which would require all retail forex counterparties to calculate, on a quarterly basis, the percentage of non-discretionary accounts that were profitable, to include the results of this calculation for the preceding four quarters in required disclosures to customers, and to maintain and make available upon request records reflecting such calculations for five years
  • Proposed Regulation 5.7, which would establish a minimum capital requirement for FCMs and RFEDs<ref>Federal Register /Vol. 75, No. 209 / Friday, October 29, 2010 /Notices. Federal Register. Retrieved on October 29, 2010.</ref>

Link to CFTC Comment Letters

Office of the Comptroller of the Currency Off-Exchange Forex Rule[edit]

American Bankers Association - June 20, 2011[edit]

OCC Retail Foreign Exchange Transactions
FDIC Retail Foreign Exchange Transactions
June 20, 2011

From the comment letter:

  • We strongly believe that even though the OCC for other purposes defines a national bank to include its foreign branches, for purposes of the prohibitions in the Commodity Exchange Act the rule should not extend to those transactions engaged in outside of the U.S. Foreign customers and U.S. persons with accounts overseas will be unnecessarily confused by the reach of the U.S. rule.
  • Banks would like to continue providing the disclosure statements that they believe are best suited for their particular customers and products offered. Given that longer disclosure is not always more effective in conveying needed information, we believe that it would not be helpful to provide both the OCC or FDIC disclosure statement and the bank disclosure statement.
  • ABA member banks would like to preserve customer choice so that they can provide the products and services that their customers expect.
  • Given [the] confusion, we strongly urge the OCC and FDIC affirmatively to define the scope of their authority with respect to foreign exchange products and services that national banks and FDIC-supervised institutions offer.
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Citigroup - May 23, 2011[edit]

OCC Retail Foreign Exchange Transactions
May 23, 2011

From the comment letter:

  • "we urge the OCC to clarify that forex forward transactions that contemp~ate an actual exchange of currencies at maturity would not be covered, even if entered irho by individuals or other customers that may not meet the test of "commercial connection with its line of business."
  • "Banking products are specifically excluded from the scope of the Dodd-Frank Act,' and should continue to be regulated as banking products, or, as appropriate, nondeposit investment products, and not as retail forex transactions, even if they may include embedded exposure to forex rates."
  • "Banks should be able to set maintenance margin levels as a matter of the bank's credit and risk policies, and in a manner that balances protecting customers from a forced close-out of their positions as soon as an adverse market move erodes margin under the 2 or 5 percent minimum level with the need to promptly collect margin and close out positions when a customer fails to meet a margin call."
  • "we are concerned that the wording of the proposed rules does not adequately reflect the fact that most banks will offer retail forex transactions over an electronic trading portal and customers will have ready access to information through a web site or other electronic interface."
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FDIC Off-Exchange Forex Rule[edit]

Citigroup - June 16, 2011[edit]

FDIC Retail Foreign Exchange Transactions
June 16, 2011

From the comment letter:

  • "Citibank urges the FDIC to work with other regulators to ensure that rules applicable to retail foreign exchange trading are consistent across regulators and provide for an even playing field."
  • Citibank believes that FDIC-insured institutions should be able to hold client cash used to margin foreign exchange trading in a manner that results in FDIC insurance covering available margin balances."
  • "It would seem that a bank should have the complete flexibility to establish the margin account as an insured deposit account if it and the customer so desire...The fact that the funds serve as collateral for an investment account should not change the nature of their insured status."
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Cathay Bank - June 16, 2011[edit]

FDIC Retail Foreign Exchange Transactions
June 16, 2011

In the comment letter, Cathay requests clarification on the following points:

  • whether the rule applies to traditional foreign currency spot transaction engaged in with an individual who is not an eligible contract participant (ECP);
  • whether a non-deliverable forward ("NDF") contract is considered a "traditional currency forward" and therefore not covered by the rule; and
  • whether the use of telephone recording systems and the retention of telephone recordings would satisfy the recordkeeping requirements.
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Federal Reserve Bank Proposed Rule[edit]



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