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  • SEC bans Broker-Dealers from retail forex transactions – LeapRate Exclusive


    LeapRate Exclusive… LeapRate has learned that the US Securities and Futures Commission (SEC) has quietly filed a notice indicating that as of July 31, broker-dealers will no longer be able to engage in leveraged foreign exchange transactions with traders, other than what it calls “eligible contract participants”, SEC-speak for institutional traders.

    SECThe ban covers all broker-dealers regulated by the SEC – including those brokers-dealers which are ‘dually registered’ with the US Commodity Futures Trading Commission (CFTC) as Future Commission Merchants (FCMs).

    What this effectively means is that only standalone CFTC registered and National Futures Association (NFA) member FCMs or retail FX dealers, as well as certain banks, may serve as counterparties in retail forex transactions.

    The move should therefore benefit (at least in the near term) the ‘big three’ US-licensed retail forex brokers: FXCM Inc (NYSE:FXCM), the Forex.com unit of Gain Capital Holdings Inc (NYSE:GCAP) and Oanda. Those three are FCM-only brokers, and are likely to pick up most if not all of the retail forex business from broker-dealers which will be banned as of July 31.

    Most US broker-dealers, including online brokers, are not very active in retail forex. E*Trade used to operate an FXCM white label, but that was terminated more than a year ago. TradeKing (recently acquired by Ally Financial) operates TradeKing Forex as an introducing broker to Gain Capital. TD Ameritrade is #4 after FXCM, Forex.com and Oanda in terms of retail forex assets in the US.

    However overall, the majority of retail forex trades in the US already occur at FCM-only brokers. So this shouldn’t cause a major shift in the industry, just a good opportunity for the big FCMs to pick up some business.

    LeapRate spoke with a senior securities lawyer in the US who believes that this is likely just the first step by US regulators to possibly ban altogether highly leveraged retail forex trading. While the SEC might not have consulted with the futures and forex industry regulators (CFTC, NFA) in making its decision regarding the broker-dealers, those regulators will likely keep an eye on the SEC’s action – and it is not inconceivable that they could take similar action at some point in the future.

    A good summary of the new rule (or rather, the expiry of an existing exemption for broker-dealers) can be seen at the National Law Review, written by Ignacio Sandoval at law firm Morgan Lewis.

    The SEC notice on the matter, dated May 20, 2016, can be seen here.

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    • Andy

      What about interactive brokers? Can they continue to offer FX?

      • Joe Vento

        Yes, they just can’t be counterparty to your


        • Feline Queen

          And they are not anyway and have never been since the beginning. IB has always been an ECN broker and I REALLY hope they stay in respite of this bullshit “regulation”.

    • Marcel

      US regulators have it in for Retail FX, only a matter of time before there all shut down. Won’t be long and they’ll all be moving their HQ to London or HK.

    • Gregory Alexandr

      @Marcel….That is interesting, the firm I previously worked moved their entire operations to HK and Italy.

      I do not believe they are moving in that direction…Dealing desk and counter party is the issue…Fines and litigation with one of the largest US firms…having been fined so much, the whole situation is laughable which in my perspective makes having so many regulating bodies culpable.

    • Peace Mon

      Send an e-mail to the SEC about this.

      [email protected]

      Here is the bureaucratic garbage they need to understand what we are talking about:

      17 CFR Part 240 RIN 3235-AL19

      [Release No. 34-77874; File No. S7-30-11]

      Retail Foreign Exchange Transactions

      I highly recommend if you do contact them to be POLITE. Do not be angry
      or a jerk about things. That will probably not do you any good. Probably
      best to consider you are speaking to a police officer. I was always
      told to say, “Yes, sir,” and stuff like that to a policeman and treat
      them with intense respect. I did not go that far here with the SEC, but I
      tried to be very polite and humble. It can go a long way!


    SEC bans Broker-Dealers from retail forex transactions - LeapRate Exclusive


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