On August 27 2015 the US Commodity Futures Trading Commission (CFTC) approved rule amendments and a new interpretive notice(1) filed by the National Futures Association,(2) strengthening protections for retail customers of National Futures Association forex dealer members (FDMs). Among other things, the rule amendments:

  • impose additional capital requirements on FDMs;
  • require FDMs to collect security deposits for off-exchange foreign currency transactions from both eligible contract participant counterparties and retail counterparties;
  • require FDMs to adopt and implement more stringent risk management programmes; and
  • require FDMs to provide additional market disclosures and firm-specific information on their websites.

Statements issued by Chairman Timothy Massad(3) and Commissioner Sharon Bowen(4) emphasised the heightened risks faced by retail customers investing in the foreign exchange market, including the losses that retail investors face as a result of minor price movements in the market. In her statement, Bowen further stated that the CFTC should consider imposing additional regulations on retail foreign exchange dealers (RFEDs), including:

  • imposing concentration charges on RFEDs if they are overly exposed to a particular currency pair or liquidity provider, to incentivise them to balance their – and their retail counterparties' – positions;
  • requiring RFEDs to get the best possible prices for their retail counterparties; and
  • requiring or incentivising RFEDs to clear, in order to lower the credit risks that retail foreign exchange investors face.

For further information on this topic please contact Donna M Parisi, Geoffrey B Goldman or Azam H Aziz at Shearman & Sterling LLP by telephone (+1 212 848 4000) or email (dparisi@shearman.com, geoffrey.goldman@shearman.com or aaziz@shearman.com). The Shearman & Sterling website can be accessed at www.shearman.com.

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