FDIC proposes highly restrictive retail forex regulations - dbFX exited in time?

The Federal Deposit Insurance Corp (FDIC) board members voted 5-0 at a meeting in Washington today to seek comment on the proposal, which would impose requirements for foreign currency futures and options that would be prohibited as of July 16 in the absence of a rule. The FDIC proposal would cover retail transactions involving individuals with $10 million or less to invest. “These are retail customers who don’t meet a sophisticated investor standard,” FDIC Vice Chairman Martin Gruenberg said at the meeting. The measure wouldn't apply to foreign currency forwards or spot transactions that banks engage in with business customers to hedge foreign exchange risk, according to the FDIC’s notice of proposed rulemaking.

The proposed regulations would also impose requirements on other foreign currency transactions that are functionally or economically similar to futures, options on futures, or options. These similar transactions include so called “rolling spot” transactions that an individual enters into with a foreign currency dealer, usually through the internet or other electronic platform, to transact in foreign currency.

The rules, published for a 30-day comment period, were required by the Dodd-Frank financial overhaul. Similar regulations were issued last September by the Commodity Futures Trading Commission which initially tried to enforce much stricter rules limiting the Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term to as low as 1:10, while eventually after loud public outcry it was limited to 'only' 1:25 and 1:50 on minors and majors.

The rules would provide consumer protections for retail investors engaged in speculative betting who "don't meet a sophisticated investor standard," said Martin Gruenberg, the FDIC's vice chairman. The FDIC proposal mandates that banks require retail investors to post 2% of the transaction's notional value as margin if they are trading a major currency pair and 5% for more unusual trades - much similar to CFTC's final rule.

Federal 11 may10no6 from Finance Magnates

dbFX and CitiFX Pro until recently were the only two 'retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term banks' operating in the US. dbFX has shut down its US retail forex operations less than a month ago quite possible because it understood where the wind was blowing.

It seems that July 2011 is going to be quite an ominous month for the US retail forex industry with dbFX already out and now CitiFX Pro will need to carefully review the situation. This would also mean that many US accounts (the last ones) will go back home as Swiss brokers are going to stop accepting US clients as well. Once again major US forex brokers are only going to profit from this, but I'm not sure this is as good for the traders themselves.

Grab your latest copy of the Forex Magnates Retail Forex Industry Report for Q1 2011.