Introducing Brokers and Forex Introducing Brokers
Definition of Introducing Broker
The term “introducing broker” is defined in the Commodities Exchange Act:
The term “introducing broker” means any person (except an individual who elects to be and is registered as an associated person of a futures commission merchant) engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market or derivatives transaction execution facility who does not accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom.
Registration Requirements for Introducing Brokers
Introducing Brokers are required to register as such with the CFTC and become a member of the NFA. Introducing brokers can be individuals but most often they are incorporated entities. In order to register as an Introducing Broker generally each owner of the firm and each person soliciting clients for the firm will need to pass the Series 3 exam (National Commodities Futures Exam). The fees for registration as an introducing broker are [____]. Introducing Brokers will also need to maintain a net capital of $45,000.
Are associated persons of an FCM introducing brokers?
No, introducing brokers are distinct from associated persons of a FCM. Associated persons are employees of a FCM whereas introducing brokers are independent of the FCM.
Forex Introducing Brokers
As we’ve reported Congress passed the Farm Bill which amended the Commodities Exhange Act. The NFA has stated specifically that they are introducing a new term “forex introducing broker” or “Forex IB.” The NFA defines a “Forex introducing broker” as: ______
Currently firms which introduce investors to FCMs for forex transactions only do not need to register as introducing brokers (this is a simplification so please contact us [[[[[[if you would like more specificity). However, many FCMs are aware of the pending forex registration requirements and are voluntarily requiring that firms which introduce forex clients register as introducing brokers.
In order to register as an Introducing Broker generally each owner of the firm and each person soliciting clients for the firm will need to pass the Series 3 (___________) exam. The fees for registration as an introducing broker are____. [Dues information______] The process will be substantially similar as the registration process for CPOs and CTAs.[[[[____ Introducing Brokers will also need to maintain a net capital of ________.
Registration Requirement
As of the date of this article, if an introducing broker makes an introduction to a FCMs or FDMs and the introduced party only engages in off-exchange forex transactions with the FCM or FDM, then the introducing broker is not required to be registered with the CFTC. However, such introducing brokers may voluntarily register and many FCMs and FDMs are requiring such registration going forward. (For more information, please see Registration as a CPO or a CTA[[[[[[ which outlines the same process for an IB.) It is expected that the CFTC will release proposed rules which would require IBs who engage in the above activities to register with the CFTC. The NFA has stated that these IBs will be referred to as “Forex introducing brokers” and will need to have passed both the Series 3 exam and the Series 34 exam.
Please note: if the IB introduces a customer which trades both on and off-exchange forex then the IB will need to be registered with the CFTC.
Other Considerations
While the business of the FCM and the IB are usually quite different, there are times when it is not so clear to the client. For instance, many IBs
Compliance Manual
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