Forex Dealer Member – Defintion of Forex Dealer Member
This article focuses on the definition of a “Forex Dealer Member” as defined by the National Futures Association. This article will address the following items: (i) overview of Forex Dealer Members, (ii) NFA Bylaw 306, (iii) NFA Bylaw 1507(b), (iv) net capital requirements for Forex Dealer Members, (v) financial statements and (vi) other issues.
What is a Forex Dealer Member?
The term “forex dealer member” is not defined in the Commodities Exchange Act (CEA) and is not a specific CFTC registration category. The term “Forex Dealer Member” is simply created by the NFA. In general, Forex Dealer Members are NFA Members who act as counterparties to forex transactions. This is a self-executing requirement, which means that any Member who qualifies is automatically a Forex Dealer Member. There is no application form and no approval requirement.
NFA Bylaw 306
Forex Dealer Members are defined in NFA Bylaw 306 as those entities which act as the counterparty, or offer to be the counterparty, to forex transactions (as defined in Bylaw 1507(b)). Excluded from the definition of FDM are those entities which are registered in another capacity with the CFTC.
Members who do not act as counterparties are not Forex Dealer Members, even if they introduce or manage forex accounts.
NFA Bylaw 1507(b)
The term “forex” is defined by the NFA for the purpose of interpreting the NFA bylaws. Under NFA bylaw 1507(b) the term “forex” is defined very broadly to cover all transactions in foreign currencies on the off-exchange market with those persons who are not “eligible contract particpants” as efined in Section 1a(12) of the Act (retail customers).
Net Capital Requirements
On July 17, 2008, NFA’s Executive Committee recommended that NFA’s Board of Directors increased capital requirements for Forex Dealer Members. These new requirements meant that FDMs will be need to maintain adjusted net capital equal to or in excess of $10 million as of October 31, 2008 (please see ______), $15 million as of January 17, 2009, and $20 million as of May 16, 2009.
Financial Stements to the NFA
Each FCM must submit monthly financial statements to the CFTC. To view these please see: http://www.cftc.gov/marketreports/financialdataforfcms/index.htm
Each FDM must submit weekly financial statements to the NFA. Each FDM must be able to properly account for all funds received from and owed to customers. Forex Dealer Members should prepare a daily computation showing the total amount of customer funds on deposit, the total amount of customer open positions, and the total amount due to customers. The firm must file with NFA weekly electronic reports showing this and other financial information. The report must be prepared as of the last business day of the week and must be filed by noon on the following business day, using NFA’s Easy File system. There is a late fee of $200 for each business day the report is late.
Other Issues
It should be noted that forex introducing brokers are not FDMs and are not regulated as such. However, in the future it is anticipated that Forex IBs will need to be registered with the CFTC and be members of the NFA. If you are thinking of establishing a FDM or Forex IB, please contact us for a free consultation on the process and issues involved with the registration of your company.
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