NFA Discusses Future Forex Rules and Forex Registration
The press release below from the NFA discusses the coming registration requirements for those forex managers which engage in advising clients on off-exchange foreign exchange transactions. It is expected that registration will be required very shortly and managers, including forex hedge fund managers, will need to be registered as a “Forex CPO.” These managers will also be required to pass the Series 34 exam which will test the manager’s knowledge of the forex regulations. The whole press release is reprinted below and can also be found here.
New provisions of Commodity Exchange Act prompt amendments to NFA forex rules
NFA has proposed several amendments to its forex rules to reflect provisions of the CFTC Reauthorization Act of 2008 enacted by Congress as part of the Farm Bill in May. The amendments cover NFA’s Bylaws, registration rules, minimum net capital requirements and other compliance issues.
“For our purposes, the most significant portions of the Reauthorization Act are the ones dealing with retail forex,” said NFA’s Senior Vice President and General Counsel Tom Sexton. “Fortunately, we anticipated many of the elements of the reauthorization and NFA staff has been able to address the necessary rule amendments quickly and efficiently.”
The legislation creates a new registration category for any firm acting only as the counterparty to retail off-exchange foreign exchange contracts. These firms will be required to register as Retail Foreign Exchange Dealers (RFEDs). An RFED or an FCM that is substantially engaged in on-exchange activities and acts as a retail forex counterparty will be designated under NFA rules as an approved Forex Dealer Member (FDM) of NFA.
The legislation also requires firms that solicit retail forex customers, manage retail forex accounts or operate pools for retail customers to register with the CFTC and be Members of NFA. FCMs, IBs, CPOs and CTAs whose activities involve retail forex will be designated Forex FCMs, Forex IBs, Forex CPOs and Forex CTAs, while APs of those firms will be designated as Forex Associated Persons.
“The separate designations are necessary for several reasons,” said Sexton. “We need to track which firms and individuals are engaged in retail forex activities, and we need to distinguish between FCMs that are designated as approved FDMs and those that are not, because approved FDMs have a higher minimum net capital requirement.”
The legislation imposes a $20 million capital requirement over a 360-day period on FCMs, their affiliates and RFEDs who act as counterparties to retail forex transactions. The CFTC recently approved an NFA rule amendment requiring these firms to have a minimum of $10 million in net capital on October 31, 2008, increasing to $15 million on January 17, 2009 and $20 million on May 15, 2009.
NFA is also amending its Bylaws to ensure that broker-dealer affiliates that register as RFEDs must be regulated as an FDM.
“NFA strongly believes that even though a broker-dealer is subject to regulation by the Financial Industry Regulatory Authority (FINRA), if its forex affiliate registers as an RFED, the affiliate should be subject to NFA regulation,” said Sexton.
Because the Reauthorization Act will require forex solicitors and account managers to be NFA Members, NFA will eliminate its provision making FDMs responsible for the acts of non-Members and replace it with a prohibition on doing business with non-Members, similar to the prohibition in Bylaw 1101. Bylaw 1101 has long been a cornerstone of NFA’s regulatory effectiveness and states that no NFA Member can do business with a non-Member.
Although as noted above, the CFTC has already approved amendments to an FDM’s minimum net capital requirements, some of the other NFA rule amendments will not be submitted to the CFTC until the Commission publishes its proposed forex rules.
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[...] will need to register with the CFTC and will need to become members of the NFA. Please see NFA Discusses New Forex Registration for more information on potential federal forex registration. If forex registration rules are [...]