The Commodity Futures Trading Commission has published for comment proposed regulations concerning the offer and sale of over-the-counter foreign currency transactions to retail customers. The proposed regulations require the registration of counterparties offering retail foreign currency contracts as either retail foreign exchange dealers (RFEDs) or, if otherwise primarily or substantially engaged in exchange-traded futures transactions, futures commission merchants (FCMs). The proposed regulations, which Congress required the CFTC to adopt in the CFTC Reauthorization Act of 2008, would establish, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital and other operational standards.
Persons who solicit orders, exercise discretionary trading authority and operate pools with respect to retail forex would also be required to register, as introducing brokers, commodity trading advisors, commodity pool operators or as associated persons of such entities, as appropriate. Current exemptions from registration as a commodity pool operator or commodity trading advisor would generally continue to apply, however. Permitted counterparties that are otherwise regulated, such as financial institutions and SEC-registered brokers or dealers, would not be subject to regulation under the proposal.
The proposed regulations also require FCMs and RFEDs 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 customer accounts would be subject to a 10-to-1 limitation.