CFTC Approves NFA Amended Rules to Better Protect Retail Forex Traders

Following the Swiss National Bank surprise decision to scrap the floor under the EUR/CHF exchange rate, the National Futures Association (NFA) has introduced additional requirements for brokers providing foreign exchange services in the US. 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 Dealer Members (FDMs) of the National Futures Association (NFA) have been subjected to additional scrutiny after the massive loss which FXCM Inc (NYSE:FXCM) incurred in January, prompting it to seek a bailout from Leucadia National.

The new rules have been published by the NFA in May, but approved by the U.S.

Commodity Futures Trading Commission (CFTC) only now. The U.S. watchdog that oversees futures and option markets has approved rule amendments and a new interpretive notice filed by the National Futures Association (NFA).

The rule amendments and interpretive notice stipulate enhanced requirements for those forex dealers (referred to as FDMs) that are members of the NFA, an organization for the U.S. derivatives industry, including on-exchange traded futures, retail off-exchange foreign currency transactions, and swap transactions.

The rules include:

1. imposing additional capital requirements on FDMs;
2. requiring FDMs to collect security deposits for off-exchange foreign currency transactions from eligible contract participant counterparties in addition to retail counterparties;
3. requiring FDMs to adopt and implement rigorous Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term programs; and
4. requiring FDMs to provide additional market disclosures and firm-specific information on their websites to permit current and potential counterparties to better assess the risks of engaging in off-exchange foreign currency transactions and with conducting business with a particular FDM.

Under the new rules, forex dealers will be required to maintain adjusted net capital equal to or in excess of $20 million plus certain percentages of the member’s various liabilities.

As mentioned, the new rules follow a raft of new regulation surrounding OTC derivative trades across multiple jurisdictions. Indeed, Finance Magnates reported today that Australia is set to roll out new rules for margin forex and CFD trading, which will be supervised by the Australian Securities and Investments Commission.