Foreign Exchange Dealers Coalition (FXDC) Evaluates New CFTC Rules On New Website
FXDC Supports Registration Requirement, Strongly Opposes 10:1 Leverage Limit
On January 27, 2010, the Foreign Exchange Dealers Coalition (FXDC) launched its first website which focuses on the new CFTC forex proposals, particularly the new 10:1 leverage limit requirement. FXDC formed in 2007 as an alliance of the largest U.S. forex dealers (GFT, Oanda, IBFX, Gain Capital, FXCM, FX Solutions, FXDD, PFG Best, and CMS Forex) whose mission is to “pool together industry resources to create awareness and recognition that forex dealers are a powerful choice for individuals who choose to speculate in financial markets”. Its focus is to ensure that the forex industry is fairly regulated and that any oversight does not interfere with the freedom of choice of forex entities.
FXDC’s Current Focus
FXDC is currently focusing its energy on the new Commodity Futures Trading Commission (CFTC) forex proposals that were released on January 14, 2010. The major regulatory changes proposed in the new rules are:
1. Mandatory registration with the CFTC through the National Futures Association (NFA) for retail foreign exchange dealers (RFEDs), futures commission merchants (FCMs), and forex commodity pool operators (CPOs), commodity trade advisors (CTAs), introducing brokers (IBs), and associated persons (APs) of the above entities;
2. Requirement of RFEDs and FCMs to maintain a minimum net capital of $20 million plus 5% of the amount by which liabilities to forex customers exceed $10 million;
3. Requirement of introducing brokers (IBs) to be guaranteed by an FCM;
4. Leverage restriction of 10:1 for all forex transactions.
In terms of the first major change, FXDC supports the proposal that these entities should be registered. FXDC believes that registration will help the forex industry to have more oversight and help decrease the amount of fraud that currently takes place.
FXDC has not said much regarding the second change. With respect to the third, FXDC has not said much either; however, in a live online public chat hosted by FXstreet.com (the text of which can be found here) Joseph Trevisani, Chief Market Analyst at FX Solutions (one of the members of FXDC) and a representative of FXDC, stated, “One point to be made on the IB The [sic] CFTC does not require guaranteed IBs in futures [sic] Why is OTC FX [i.e. over-the-counter forex, or forex] treated differently in this rule proposal?”
FXDC’s Major Issue Regarding Leverage Proposal
The major issue FXDC has with the proposed rules is the 10:1 leverage restriction. FXDC believes that imposing such a low leverage limit will be damaging to both the forex industry as well as the American economy. On its new website, FXDC outlines five primary reasons regarding its opposition. FXDC argues that:
1. 90% of forex traders will move their accounts from the U.S. to offshore brokers.
2. Thousands of people who work in forex in the U.S. will lose their jobs (which require “…an advanced education and range from software developers to accountant to foreign exchange dealers”) due to traders moving their account offshore.
3. The U.S. will lose billions of dollars in trade revenue.
4. Forex fraud will worsen, not improve.
5. Unregulated offshore dealers will thrive from new all the new business, and since they are unregulated and not required to deal with “…capital requirements, risk management models, marketing ethics, dealing practices, or even returning a customer’s funds”, consumers will be more vulnerable to fraud.
FXDC Urges Consumers To Take Action
FXDC is asking consumers to submit comments to CFTC which raise objection to the new leverage rule in particular. On the Take Action section of its website, FXDC offers suggestions of arguments consumers can use when writing their comment letters. There is no guarantee that the submission of comments will persuade the CFTC to modify its rules; however, FXDC believes that it is at least worth the shot.
For updated forex registration information and CFTC rule updates, sign up for our email updates on the forexregistration.com homepage.
To read FXDC’s full statement in response to the new proposal, click here.
To visit FXDC’s new website, click here.
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Other related forex law articles include:
- Forex Industry Overwhelmingly Against Lower Leverage
- PFGBEST Press Release On New Forex Regulations
- Forex Leverage Significantly Reduced By Proposed CFTC Regulations
- Retail Forex Registration Regulations Proposed
Bart Mallon, Esq. of Mallon P.C. runs the Forex Law Blog and provides forex registration service through forexregistration.com. Mr. Mallon also runs the Hedge Fund Law Blog. He can be reached directly at 415-868-5345.
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