Forex Regulation Scenarios
Our forex attorneys have spoken with the NFA on numerous occasions with regard to a variery of off-exchange foreign currency trading issues. In addition to discussing issues with regard to forex disclosure documents, we have also discussed certain forex regulation scenarious. [Please note: these scenarios were discussed with the NFA prior to the discussion of forex regulation and forex registration with the CFTC.]
These scenarios deal with several regulation issues of a froex trader who manages accounts, and also receives a PIP rebate from the FCM.
Scenario 1:
Facts:
1. Trader specifically trades in forex through an FCM.
2. Trader receives power of attorney over customer accounts.
3. Trader receives a share of round-turn pips from FCM due to high volume of trades.
Question: Is the trader considered an AP or an IB to the FCM?
Answer: No. Because the trader is not an employee or an agent of the FCM, he is not considered an AP. Also, because the trader is trading with an enumerated counterparty and trading strictly forex, he is not required to register as an IB.
Scenario 2:
Facts:
1. Fund is an LP.
2. The General Partner manages and trades the Fund through an FCM.
3. The FCM gives the General Partner a pip commission due to high volume of trading.
Question: Does the General Partner need to register?
Answer: No. The scenario is the same as above. In addition, the fund must solely trade in forex and nothing else in order to be exempt. Also, the Fund and the General Partner should disclose to the other LPs regarding the commission kickback by the FCM.
In addition, there may be a way to trade forex through a counterparty other than an FCM. In Bank Brussels Lambert, S.A. v. Intermetals Corp., 779 F. Supp. 741 (S.D. N.Y. 1991), the court stated that spot currency trading through a bank, even though positions were held for more than 2 days, were not considered futures, thus not under the Commodities Exchange Act. In the spot market, banks are required to deliver within 2 days. But, for the benefit of speculators, the bank devised a way where they could roll over positions for longer period of time. When the deadline of 2 days neared, the bank would allow execution of 2 simultaneous orders, one closing out the position and the other opening the same position, thus allowing for roll over.
Comments
Leave a Reply