CFTC Proposed Leverage Changes

alan · #1 (**permalink**) 01-20-2010, 11:23 PM

Did you guys hear about the CFTC's proposed leverage changes? First the NFA bullshit, now this!? What's next? No leverage at all?

Quote:

The U.S. Commodity Futures Trading Commission (CFTC) announced on January 13, 2010 that it is seeking public comment on proposed regulations concerning retail forex trading.

As part of the proposed regulations, "leverage in retail forex customer accounts would be subject to a 10-to-1 limitation," which means 10:1 leverage would be the maximum amount allowed for forex traders in the U.S.

An example of how the proposed regulatory restrictions would affect a major currency pair appears below:

Maximum Leverage under

Current Regulations Maximum Leverage under Proposed Changes
USD/JPY USD/JPY
100:1 leverage (one percent) 10:1 leverage (10 percent)
1 lot (100,000) 1 lot (100,000)
Margin requirement: $1,000 Margin requirement: $10,000

If the CFTC gets their wish small US traders (and those trading with US brokers) shall have to move their business offshore - and I say good riddance too! The US is becoming more like the USSR me thinks.

If you feel strongly about the proposal, I encourage you to help determine the outcome of these proposed regulations. You can help make an impact by sending comments directly to the CFTC at: secretary@cftc.gov

Please include 'Regulation of Retail Forex' in the subject line of your message.

You can also submit your comments by any of the following methods:

* Fax: (202) 418-5521
* Mail: David Stawick, Secretary Commodity
Futures Trading Commision 1155 21st Street, N.W.,
Washington, DC 20581
* Courier: Use the same as mail above.

To find out more about this visit the CFTC's website at:

http://www.cftc.gov/?sssdmh=dm23.118459

alan · #2 (**permalink**) 01-20-2010, 11:30 PM

--quote--

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the publication in the Federal Register of proposed regulations concerning off-exchange retail foreign currency transactions. The proposed rules follow the passage of the Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, 122 Stat. 1651, 2189-2204 (2008), also known as the “Farm Bill,” which amended the Commodity Exchange Act in several significant ways. In particular, the Farm Bill:

• clarified the scope of the CFTC’s anti-fraud authority with respect to retail off-exchange foreign currency transactions;

• provided the CFTC with the authority to register entities wishing to serve as counterparties to retail forex transactions as well as those who solicit orders, exercise discretionary trading authority and operate pools with respect to retail off-exchange foreign currency transactions; and

• mandated minimum capital requirements for entities serving as counterparties to such transactions.

“These proposed rules for retail foreign exchange trading are important steps in implementing the additional consumer protections authorized in the 2008 Farm Bill,” CFTC Chairman Gary Gensler said. “The Commission looks forward to receiving and considering the public’s comments on this important issue.”

Pursuant to this authority, the Commission is proposing a comprehensive scheme that would put in place requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital, and other operational standards. Specifically, the proposed regulations would require the registration of counterparties offering retail foreign currency contracts as either futures commission merchants (FCMs) or retail foreign exchange dealers (RFEDs), a new category of registrant created by the Farm Bill. Persons who solicit orders, exercise discretionary trading authority and operate pools with respect to retail forex would also be required to register, either as introducing brokers, commodity trading advisors, commodity pool operators, or as associated persons of such entities. As was the case prior to the passage of the Farm Bill, “otherwise regulated” entities such as financial institutions and SEC-registered brokers or dealers remain able to serve as counterparties in such transactions under the oversight of their primary regulators.

The proposed regulations also include financial requirements designed to ensure the financial integrity of firms engaging in retail forex transactions and robust customer protections. For example, FCMs and RFEDs would be required to maintain net capital of $20 million plus 5% of the amount, if any, by which liabilities to retail forex customers exceed $10 million. Leverage in retail forex customer accounts would be subject to a 10-to-1 limitation. All retail forex counterparties and intermediaries would be required to distribute forex-specific risk disclosure statements to customers, and comply with comprehensive recordkeeping and reporting requirements.

Comments regarding the proposed regulations may be submitted by any of the means listed in the Federal Register release and should be received by the Commission within 60 days of the date of publication.

--end quote--

liggy002 · #3 (**permalink**) 01-21-2010, 03:37 AM

Oh yeah, I heard about this. In fact, I sent a communication to the CFTC with my protest. The United States really is changing but I suspect that even if the legislation were enacted, many would still fight it. Boston Tea Party anyone?

jayman · #4 (**permalink**) 01-21-2010, 11:58 AM

Quote:

Originally Posted by liggy002

Boston Tea Party anyone?

Great idea .... Alan, you should sponsor the 2010 Forex Nirvana Boston Tea Party

alan · #5 (**permalink**) 01-21-2010, 02:42 PM

Quote:

Originally Posted by liggy002

Oh yeah, I heard about this. In fact, I sent a communication to the CFTC with my protest. The United States really is changing but I suspect that even if the legislation were enacted, many would still fight it. Boston Tea Party anyone?

Thanks for showing your support liggy002!

Hmm, a second Boston Tea Party should have happened a LONG time ago. There is a great political truth I heard a while back that says something along these lines...that people would rather suffer great hardship than rebel and change the order of things.

The media will spin this and other such draconian legislation as being "for the nation's good" or for the financial well being of the country. Bah, it's all hogwash, the US is in the equivalent of a financial dung hole (if you'll pardom my crassness) because of the very people who are now supposedly trying to protect the nation from "excessive risk" and from the "evil profiteering traders"...

Anyways, I noticed e-mails coming in from every broker with whom I've had or have an account with, be it demo or live. They know that if this legislation passes they are going to lose a VERY large chunk of the retail forex meat pie.

alan · #6 (**permalink**) 01-21-2010, 02:47 PM

Quote:

Originally Posted by jayman

Great idea .... Alan, you should sponsor the 2010 Forex Nirvana Boston Tea Party

Jay, I would but I'm not sure how kindly the powers that be would take to a revolution sparked by a Canuck (informal term for Canadian for those of you unfamiliar with the term). They'd invade Canada the next day and finish what they tried to do in 1812

...lol

^eagle^ · #7 (**permalink**) 01-21-2010, 04:03 PM

Well it IS canada's fault we are in this mess.

YouTube

BryanA · #8 (**permalink**) 01-21-2010, 04:25 PM

I have sent my protest as well. I already have a daddy. I don't need a big government daddy.

alan · #9 (**permalink**) 01-21-2010, 11:07 PM

^eagle^ the moment you said that I immediately knew you were going to post the blame Canada song.

---

First they came for the communists, and I did not speak out—because I was not a communist;

Then they came for the trade unionists, and I did not speak out—because I was not a trade unionist;

Then they came for the Jews, and I did not speak out—because I was not a Jew;

Then they came for me—and there was no one left to speak out.

~Martin Niemöller (1892–1984)

alan · #10 (**permalink**) 01-21-2010, 11:26 PM

This is but one of changes that have/will come into effect in the US regarding the retail forex market:

Quote:

1. The new rules will require all RFEDs (Retail Foreign Exchange Dealers) and FCMs (Futures Commodity Merchants) in the US to register. Also, "Persons who solicit orders, exercise discretionary trading authority and operate pools with respect to retail forex would also be required to register, either as introducing brokers, commodity trading advisors, commodity pool operators, or as associated persons of such entities."

Basically, this means that in the US, all forex brokerages, forex account managers, investment pools trading forex, IBs to registered brokers, have to be registered. I think this is a great thing. It will help potential traders or investors weed out the potential scammers out there by giving them a chance to check out their registration number before giving them their hard earned money.

2. The next big change is that a minimum net capital requirement of at least $20 million, plus 5% of any amount of retail customer liabilities that exceed $10 million.

Brokers who cannot meet or find the funds to meet this requirement will probably have to move offshore. If you are trading with one of these brokers, it's up to you if you want your money to move offshore with them or transfer your funds to a broker who can meet that criteria. Again, it's up to you where you put your money, but I would seriously consider asking how this will affect your ability to trade and the safety of your funds during transfer.

To find out which camp you're in, please visit the CFTC's most recent financial data page for Futures Commission Merchants or contact your broker and ask them about the proposed changes.

3. Finally, the new rule change causing a ruckus across the forex industry is to set maximum leverage to 10:1 for retail forex traders in the US...

Ok, I'm feeling a bit torn about this because I'm all about traders not over leveraging their positions, but I'm also about giving those traders who know how to control and manage risk the choice and ability to increase their position size if a trade goes their way.

Also, if this rule does go into effect, it may hold back those new traders who have developed a profitable system and the discipline to manage risk, but have low starting capital, from getting their feet wet.

In my opinion, this is a case of "over regulation," and that "education" for traders is a better solution so that the few who don't know what they're doing with leverage doesn't ruin it for the rest of us who do. The United States of America is the land of the free, where each forex trader should be able to make their own educated decisions about their money and take responsibility for their own actions, right?? Right!!??

source: CFTC Changing Retail FX Rules in the US? | Forex Blog: Espipionage