USA: NFA seeks to require daily confirmation of funds covering liabilities to retail FX customers


The USA’s regulatory authorities are taking even more steps to ensure the consumer safety of those trading FX at the retail level, just yesterday the National Futures Association submitted to the CFTC proposed amendments regarding daily confirmation of funds covering liabilities to retail forex customers. If the CFTC does not call for a review in ten days the new proposals will become updated statutes and any brokers holding retail FX client funds will have to comply. You can read about the proposed changes below:

Pursuant to Section 17(j) of the Commodity Exchange Act, as amended, National Futures Association (“NFA”) hereby submits to the Commodity Futures Trading Commission (“CFTC” or “Commission”) the proposed amendments to NFA Financial Requirements Section 14 regarding daily confirmation of funds covering liabilities to retail forex customers. NFA’s Board of Directors (“Board”) approved the proposal on August 21, 2014.

NFA is invoking the “ten-day” provision of Section 17(j) of the Commodity Exchange Act (“CEA”) and plans to make the proposal effective ten days after receipt of this submission by the Commission unless the Commission notifies NFA that the Commission has determined to review the proposal for approval.


PROPOSED AMENDMENTS
(additions are underscored)
FINANCIAL REQUIREMENTS
***

SECTION 14. ASSETS COVERING LIABILITIES TO RETAIL FOREX CUSTOMERS.
***
(f) Each Forex Dealer Member must instruct each qualifying institution, as required by NFA, holding assets used to cover the Forex Dealer Member’s liabilities to its retail forex customers under subsection (a), to report the balances in the Forex Dealer Member’s account(s) to NFA or a third party designated by NFA in the form and manner prescribed by NFA.

(g) In addition to the requirements of subsections (c), (d) and (e), in order to be an acceptable qualifying institution to hold assets used to cover a Forex Dealer Member’s liabilities to its retail forex customers identified in subsection (a), the qualifying institution must report the balances in the Forex Dealer Member’s account(s) held at the qualifying institution to NFA or a third party designated by NFA in the form and manner prescribed by NFA.

EXPLANATION OF PROPOSED AMENDMENTS

Dollar-sign-magnifiedNFA Financial Requirements Section 4 requires FCMs that hold customer segregated funds, secured amount funds and cleared swaps customer collateral (collectively “customer segregated funds”) to instruct depositories holding customer segregated funds to report the balances in all customer segregated funds accounts on a daily basis to NFA or a third party designated by NFA. Depositories must report the balances in these accounts in order to be considered an acceptable depository to hold customer segregated funds. NFA receives daily customer segregated fund balances from banks, clearing FCMs and designated clearing organizations.

Although FDMs are not subject to the Commodity Exchange Act’s segregation requirements for funds deposited by retail forex customers, both the Commission’s regulations and NFA Financial Requirements Section 14 require FDMs to calculate daily the amount owed to customers for forex transactions and to hold assets equal to or in excess of that amount at one or more qualifying institutions in the United States or money center countries. NFA believes that it is an important customer  protection measure to require FDMs to also verify daily that they have sufficient funds to meet their liability to forex customers. Therefore, NFA is amending NFA Financial Requirements Section 14 to require each FDM to instruct each qualifying institution that holds assets used to cover its liabilities to retail forex customers to report daily the balances in these accounts to NFA or a third party designated by NFA. The proposed amendments also specify that in order to be an acceptable qualifying institution to hold assets covering an FDM’s liabilities to retail forex customers, the qualifying institution must report the balances in the FDM’s accounts to NFA or a third party designated by NFA.

As mentioned earlier, NFA is invoking the “ten-day” provision of Section 17(j) of the Commodity Exchange Act. NFA intends to make the proposed amendments to NFA Financial Requirements Section 14 regarding daily confirmation of funds covering liabilities to retail forex customers effective ten days after receipt of this submission by the Commission, unless the Commission notifies NFA that the Commission has determined to review the proposal for approval.

To read the official letter, click here (PDF).

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USA: NFA seeks to require daily confirmation of funds covering liabilities to retail FX customers

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