CFTC to allow foreign-based IBs to use domestic accounting rules in their reports


After almost four years of maintaining an exclusively domestic electronic trading market in which all FX companies and introducing brokers in the United States could only solicit domestic customers, and in which domestic customers could only choose a domestic brokerage with which to trade, the US authorities are beginning to provide methods of overseeing foreign entities which either act as intermediaries for, or refer business to, US firms.

The US authorities are beginning to facilitate easier modes of business between overseas entities and US firms whilst aligning the business procedures of the foreign entities with those of the US. The most recent example of this is the Commodity Futures Trading Commission (CFTC)’s decision to allow overseas introducing brokers (IBs) to use domestic accounting rules when producing reports.

Yesterday, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued no-action relief to certain introducing brokers (IBs) with respect to net capital and financial reporting requirements under Commission Regulations 1.10 and 1.17, respectively.

The conditioned relief permits foreign-domiciled IBs to file audited and unaudited form 1-FR-IBs, as applicable, using local accounting principles in effect where the IB is domiciled in lieu of U.S. Generally Accepted Accounting Principles or International Financial Reporting Standards. In addition, eligible foreign-domiciled IBs will not be required to apply certain foreign currency capital charges under Regulation 1.17 and staff guidance.

The relief also permits IBs to recognize as a current asset for adjusted net capital under Regulation 1.17 commission receivable balances which are promptly billed and due from their over-the-counter swap customers.

Alluding further to the CFTC’s wish to allow certain overseas business but under the highly respected, customer-first auspices of the federal regulatory body is the CFTC’s recent decision to allow exchange-based trading via direct access between US clients and Tokyo Commodities Exchange, Singapore Exchange’s derivatives market, and Bursa Malaysia’s derivatives operations.

Clearly, the US is keen to ensure that its regulators maintain full jurisdiction over firms with which domestic clients are doing business, however via this methodology, it can allow overseas IBs to provide service to US firms whilst maintaining US levels of customer protection.

For the official announcement from the CFTC, click here.

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CFTC to allow foreign-based IBs to use domestic accounting rules in their reports

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