Forex Transactions and State Law - Utah and Idaho Forex Laws
Pooled investment funds dealing solely in off-exchange spot Forex transactions are not subject to CFTC registration. However, your proposed fund will be subject to both Idaho and Utah law since you plan to raise money and have a place of business in Idaho and you plan to execute trades through agents located in Utah.
Utah Law
The Utah Uniform Securities Act (the “Utah Act”) considers foreign currency to be a “commodity,” as that term is defined in Section 61-1-13(e) of the Utah Act, but considers “commodity contracts,” as that term is defined in Section 61-1-13(f), to be “securities.” The effect of these definitions is that your traders in Utah will be deemed to be trading in securities for the purposes of Utah law. As such, Utah would consider them to be investment adviser representatives, and they would have to register with Utah.
Registering as an investment adviser representative will require your traders to either pass the Series 65 exam or both the Series 7 and Series 66 exams. However, Utah does waive the exam requirements for individuals that hold certain professional designations.
Idaho Law
The Idaho Commodity Code (the “Code”) also considers foreign currency to be a “commodity” and prohibits the sale or purchase of any commodity under any “commodity contract” or “commodity option” unless you claim one of several limited exemptions. The exemptions, found under Section 30-1503 of the Code, allow futures commission merchants registered with the CFTC and broker-dealers to trade in commodities.
Since you are raising money in Idaho and will have a place of business there, you would be subject to the relevant Code provisions and would have to register as a futures commission merchant (FCM). Registration as an FCM requires $500,000 in net capital which must be evidenced by audited financial statements upon registration.
However, based on a conversation with the Idaho Department of Finance, you may be allowed to operate your fund if you were registered as either an investment adviser or a commodity pool operator. Such relief would be desirable as the requirements to register as an IA or CPO are less burdensome. To obtain a definitive opinion from the Department on this issue upon which you could rely, it would be necessary to write a letter seeking no-action relief.
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