Overview of Major Forex Industry Players’ Public Comments
Major Forex FCMs, IBs, and Other Industry Players Submit Public Comments to CFTC Regarding Proposed Retail Forex Regulations
The public comment period for CFTC’s Proposed Retail Forex Regulations ended on Monday, March 22. CFTC received close to 9,000 comment letters. We went through the comments submitted by the major forex industry players and pulled out some of their major arguments which we have gathered for you below.
When the CFTC Forex rules are finalized, we will send out an update on Forex Law Blog.
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Foreign Exchange Dealers Coalition (FXDC)
FXDC is made up of the top 10 Forex firms in the US and opposes the new 10 to 1 leverage proposal, among others. The following offers you snippets from the comment letters of FXDC itself and its associated firms.
FXDC
- “[Proposed Regulation 5.9] if adopted will have a devastating impact on the retail Forex industry, drive it largely overseas, and on balance, offset many positive provisions included in the…Proposal.”
Alpari US
- “The CFTC appears to be under the misguided impression that decreased leverage would somehow protect individual clients from losing their life savings.”
Capital Market Services (CMS Forex)
- “Higher leverage options also allow small investors to have access to and meaningfully participate in the forex market.”
FXCM
- “…FXCM believes that, if adopted, the proposed 10:1 leverage limit will have the unintended consequence of increasing the potential for retail forex fraud in the U.S. as domestically registered firms are forced out of business or move offshore…”
- “FXCM believes that NFA’s current leverage limits are not inappropriate and if maintained will enable CFTC-registered forex counterparties to continue competing against non-U.S. firms.”
FX Solutions
- “The proposed rule regarding leverage is based on the mistaken belief that margin is for the protection of customers. In actuality, margin is for the protection of FCMs.”
- “In attempt to reduce customer exposure to risk, the CFTC is ignoring its objective to protect customers from the fraudulent acts of industry professionals, and is, instead, attempting to protect customers from themselves.”
Global Futures & Forex, Ltd. (GFT)
- “The proposed rules should be made consistent with the regulations applicable to exchange-traded futures.”
- “IBs who are willing to post their own capital and maintain their own compliance functions should be permitted to operate independently when they introduce forex accounts, just as they do when they introduce futures accounts. There is no rational reason to distinguish between futures and forex IBs in relation to guarantees.”
Gain Capital (Forex.com)
- “Not allowing IBs engaged in the introduction of forex customers to become Independent IBs is inconsistent, and arguable anti-competitive, with existing registration options available to IBs introducing futures customers.”
Interbank FX
- “We believe that this proposal [10:1 leverage limit]— is unnecessary to protect retail investors because this goal is already achieved through rigorous capital requirements that will prevent fly-by-night operations from defrauding investors.”
OANDA
- “A significant issue with the proposed 10:1 leverage restriction is that the choice of 10:1 appears arbitrary. No scientific, economic, financial, or empirical reasoning behind the choice of 10:1 have been provided.”
PFGBEST
- “By asserting that there is an increased need for customer protection from risk, the CFTC is removing the long held view that traders are responsible for determining their own risk tolerance.”
- “The most significant threat to a forex customer is not risk; it is the element of fraud that has been allowed to fester due to inadequate regulatory oversight of industry professionals.”
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IB Coalition (Forex on the Go, Gecko Financial Services, BackBay FX, Currensee, ATC Brokers, Fast Trading Services)
IB Coalition is a group of Introducing Brokers who oppose the guaranteed introducing broker proposal, among others.
- “The Commission should eliminate the guaranteed IB requirement and provide a forex IB with the same choice that a futures IB has to operate either as an independent IB or a guaranteed IB.”
Futures Industry Association (FIA)
- “FIA believes that current NFA’s security deposit requirements provide more customer protection than the Commission’s [CFTC] proposal. Setting a security deposit level requires finding a balance point”.
National Futures Association (NFA)
- “Based on our experience, a proportionately greater number of the firms that offered higher leverage had also been the subjects of NFA complaints, while neither of the firms that offered 50:1 leverage had ever been the subject of an NFA or CFTC enforcement action. These statistics not only indicate that higher leverage ratios can lead to abuses but also indicate that FDMs can compete while offering leverage of 100:1 or less.”
US Senator Orrin G. Hatch
- “If all developed-country regulators adopted common leverage requirements, the U.S. industry might be able to remain competitive under such a rule, but absent such standardization, the United States is at risk of losing jobs from this proposed regulation.”
Currensee
- “There is no reason for applying a different regulatory approach to forex IBs than to futures IBs, especially when the existing framework has proven to work well in protecting customers.”
Forex Club
- “[10 to 1 leverage] would have the undesirable effect of driving customers away from domestic, regulated and well capitalized firms to offshore, and likely unscrupulous, operators.”
MFG Global
- “MFG believes that the business disruption and competitive disadvantage to be caused by the Commission’s proposed 10:1 rule is unnecessary given the many other elements of the comprehensive regulatory regime the Commission is proposing.”
Rosenthal Collins Group
- “[The risk disclosure statement requirement for forex customers under Proposed Regulation 5.5] imposes an onerous burden on US retail forex firms, as well as placing them at competitive disadvantages, without adding any value to the disclosures to potential retail forex customers.”
CTA/CPO John W. Henry & Company
- “…we have concerns about the scope and application of the Proposal to CTAs and CPOs now registered as such and already subject to existing Commission and National Futures Association (NFA) rules.”
To read Mallon P.C.’s public comment, click here.
To read the public comments on CFTC’s website, click here.
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Other forex law blog articles include:
- Senator Hatch Comments on Retail Forex Proposal
- New Forex Regulations: Overview of Public Comments
- Foreign Exchange Dealers Coalition (FXDC) Evaluates New CFTC Rules on New Website
- Forex Industry Overwhelmingly Against Lower Leverage
- New Introducing Broker Coalition
- Retail FOREX Registration Regulations Proposed
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