NFA proposes to eliminate board seat allocated to retail forex dealers

Forex dealers see declining influence in the US, as their numbers continue to fall

The structure of the Board of Directors of the NFA is facing imminent changes, and those might eliminate the board membership of retail forex dealers. Yesterday, the NFA has issued a press release detailing a proposal for structural changes to the Board. Back in August 2012 NFA’s Special Committee has recommended that Retail Foreign Exchange Dealers (RFEDs) get a Board representative.

Things looked quite differently at the time – there was a total of 18 Forex Dealer Members (FDMs) comprised from eleven RFED/FCMs (Futures Commission Merchants), two members that were RFEDs only and five which were FCMs-only. At the time their liabilities to customers totaled $870 million which was a fair enough reason for them to be represented on the NFA Board.

We all know how the story unfolded – only a year and a half later, after the sweeping changes that Dodd-Frank brought to the foreign exchange dealer space in the US, we are faced with a proposal that puts into question the need FDMs to be represented with a member on the NFA’s board. Currently the number of FDMs is reduced to ten – six RFED/FCMs, two RFEDs only and two FCMs only. At the same time the assets with which they are liable to their customers total $655 million – a drop by more than 30%.

According to the press release issued by the NFA yesterday, the NFA’s Special Committee has recommended that RFEDs be combined with Swap Dealers (SDs) and MSPs (Major Swap Participants) for the purpose of having a board representative.

While the logic behind the proposal is quite sound – the only substantial difference between RFEDs and SDs is that RFEDs are a counterparty to non-ECPs (Eligible Contract Participants), while SDs are involved in transacting forex swap deals with ECPs – this doesn’t change the fact that retail forex community is most likely going to be stripped from a direct representation of its interests on the NFA Board. The proposal has been put to a vote where ballots must be submitted by March 21, 2014.

For the full press release visit the NFA’s website.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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