October 2009 Washington Watch for the Forex Industry
October 2009
Washington Watch for the Forex Industry
Washington Watch for the Forex Industry is a bi-monthly newsletter published by FXCM and intended for
Referring Brokers that are domiciled and/or have customers in the United States. The newsletter will report relevant
regulatory and political matters that affect the Referring Broker community. It will also include educational articles
intended to shed light on the many new regulations that will be enforced in the months ahead.
Will Derivatives Reform Affect Retail
Forex? Sec. 711. Definitions.
By Charlie Delano (9) Derivative‐ The term "derivative” means:
Director of Government Affairs, FXCM (A) a contract of sale of a commodity for future
delivery; or
Over the past several months, a number of bills have (B) a swap.
been drawn up in both the House and Senate that
would dramatically overhaul the financial services The bill further excludes foreign exchange swaps and
industry. The collapse of Lehman Brothers in forwards specifically.
September 2008 and the ensuing credit crisis has
spawned a reform movement intent on regulating Sec. 711. Definitions.
the over the counter (OTC) derivatives market, (35) Swap.
which has become public enemy number one in the (B) Exclusions‐ The term "swap" does not include:
eyes of many in Washington. (ix) any foreign exchange swap;
(x) any foreign exchange forward.
Derivatives reform is a top priority for the Obama
Administration, and in August, the Treasury So while the legislative language would indicate that
Department sent their own bill to Congress with retail forex is not included, it does, however, give
specific legislative language that is now under regulators a fair amount of leeway in defining what a
careful consideration. derivative is.
Of course, the first question for anyone in the retail It is this leeway that has prompted concern that
forex industry is, "Will this affect me?" some financial products, such as over the counter
precious metals, may escape regulation. The recent
Much of that answer depends on whether or not trend of forex dealers offering OTC gold contracts
retail forex contracts are being classified as a side by side with forex contracts has gotten the
derivative. Some members of Congress aren't quite attention of regulators who prefer this activity be
sure what a derivative is and others assume that done solely on exchange. However, there is concern
anything traded over the counter must be a amongst regulators that they currently lack the
derivative. But since retail forex contracts do not authority to enforce their on‐exchange preference
derive their value from an underlying instrument for metals trading. Therefore, don't be surprised to
(retail forex contracts are the underlying instrument) see additional language added in any financial
the obvious answer is that retail forex contracts regulatory reform bill. The Treasury bill is by no
should not be categorized as being a derivative. means the end of discussion.
The good news is that sources at the Commodity That being said, the current derivative reform bills
Futures Trading Commission (CFTC) and several key pending before Congress do not appear to impact
members of Congress we have met with agree that retail forex. As several government sources have
retail forex contracts are not derivatives and agree told us, "We dealt with retail forex last year. We're
that they should not be classified as such. But what done with it for now." Indeed, the CFTC's main focus
exactly does the Treasury Department's new bill say? in regards to retail forex is the creation of the
regulatory framework that came about from last
The bill itself is vague about what a derivative is and year's Farm Bill.
gives no definition that would resemble a retail forex
contract.
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October 2009 Washington Watch for the Forex Industry
It is these rules that we will discuss in great detail as any individual or entity that has a 10% or more
when they are published in the months ahead in financial stake, or has influence over a registrant’s
addition to any new developments in the financial day to day activities.
reform debate.
Breaking Down NFA Registration Step 2:
By Thomas Gipson The NFA will conduct a background check for each
Compliance Associate, FXCM Principal and Associated Person (AP) of the
registrant. This includes a required submission of a
The forex industry continues to linger in anticipation fingerprint card, and the completion of a separate
of the rule proposals by the Commodity Futures individual application form. An AP is an individual
Trading Commission (CFTC) to establish licensing and who intends to solicit orders, customers or customer
registration requirements for Money Managers and funds (or who supervises persons so engaged) on
Referring Brokers (RBs). As the expectation of the behalf of the IB. Any individual who is applying as
release date continues to grow, it is evident that the an Associated Person or Sole Proprietor/Introducing
RB community has commenced its transition into the Broker must also provide evidence of passing the
regulated environment. In the previous month, a Series 3 exam within the past two years. At least
growing number of RBs have begun to take strides one individual Principal needs to be registered with
towards registration with the National Futures the NFA and also as an Associated Person (Series 3
Association (NFA), and many have requested licensed).
guidance from FXCM regarding this process. In an
effort to provide some clarity on this issue, and to
maintain our valued relationship with RBs, FXCM has Step 3:
established an NFA registration team. The first IBs are required to maintain a minimum of $45,000
initiative of the team, and the intent of this article, is in adjusted net capital. To verify that the firm has
to provide the RB community with a description of satisfied this financial requirement, applicants are
the steps involved when becoming an NFA required to file an audited copy of the firm’s
registered Introducing Broker (IB). financial statements. An applicant that files only
unaudited financial statements will be subject to an
Once the rules become effective, RBs that intend to on‐site review by the NFA within six months of its
solicit U.S. customers and introduce business as registration date. Aside from the financial
forex professionals (as an organization or individual) obligations, the NFA also requires registrants to
must become registered as an IB and apply for NFA submit firm procedures and policies that address the
membership. The following is a step‐by‐step guide following areas: (a) Anti‐Money Laundering; (b)
for adhering to the upcoming registration Business Continuity and Disaster Recovery; (c)
requirements: Promotional Material Guidelines; and (d)
Compliance Program. Lastly, after completing the
registration process the IB will be prompted to pay
Step 1: an initial non‐refundable registration fee of $200,
NFA requires all applicants to enroll in the Online $85 for each principal of the firm, and $750 in NFA
Registration System (ORS) by completing an dues.
enrollment form. The enrollment form requests
general information on the firm and allows the
applicant to identify a Security Manager. Once the An official release date for the CFTC rules has not
NFA approves the enrollment request, the Security been confirmed, and details on how the existing
Manager will have access to the ORS and will serve regulations will translate to off exchange forex are
as the contact person to the NFA for the duration of still unknown. Despite this uncertainty, FXCM will
the registration process. Once logged into the ORS, continue to update the RB community with any
the Security Manager will be required to complete a developments or indications that we gather from
firm application and provide detailed information on our correspondents in Washington, D.C. FXCM
the business and its Principals. A Principal is defined
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October 2009 Washington Watch for the Forex Industry
encourages RBs to rely on our firm’s publication, industry and regulatory environment throughout the
Washington Watch for the Forex Industry, to stay year.
informed of the ongoing changes in the forex
Questions? Contact Us! Publication Address:
Newsletter ‐ For any inquiries regarding newsletter content, please e‐mail: Forex Capital Markets LLC
Charlie Delano, Director of Government Affairs, FXCM 32 Old Slip, 10th Floor
cdelano@fxcm.com New York, NY 10005
Tel (212) 897‐7660
Compliance ‐ For specific inquiries regarding regulatory rules, please e‐mail:
Fax (212) 897‐7669
Thomas Gipson, Compliance Officer, FXCM
www.FXCM.com
compliance@fxcm.com
NFA Registration – For more information on how to become a registered Introducing
Broker please feel free to contact your FXCM Institutional Sales representative or
FXCM's NFA Registration Team at ibregistration@fxcm.com.
Disclaimer:
Risk Warning: Currency trading involves substantial risk of loss, read full disclosure.
FXCM and its affiliates assume no responsibility for errors, inaccuracies, or omissions in these materials. They do not warrant
the accuracy or completeness of the information, text, graphics, links, or other items contained within these materials. FXCM
and its affiliates shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation
losses, lost revenues, or lost profits that may result from these materials. This e‐mail is not a solicitation to buy or sell currency.
All information contained in this e‐mail is strictly confidential and is only intended for use by the recipient. FXCM is
compensated for its services through the spread between the bid/ask prices. This communication was sent from a non‐
monitored alias e‐mail account. All replies should be sent to info@fxcm.com. Replies sent to info@fxcm.com will be received by
the FXCM corporate e‐mail system and are subject to storage and review by someone other than the recipient.
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