Farm Bill Stands to Overhaul Retail FX Industry
May 15, 2008
The Farm Bill was finally passed by the US Senate today and it stands to overhaul the entire FX industry.
As far as I understand, in the past, the National Futures Association governed the Retail Forex industry, but now under the Farm Bill, that jurisdiction moves to the CFTC (Commodity Futures Trading Commission) which regulates the commodities and futures markets in the US.
The biggest changes brought forth by the Farm Bill is the requirement for all retail forex brokers and introducing brokers to be regulated AND meet specific capital requirements.
Retail FX traders should rejoice because the wild wild west of trading is finally being reined in. According to the bill, retail forex brokers will need to increase their capital by:
“(I) $10,000,000, beginning 120 days after the date of the enactment of this clause;
“(II) $15,000,000, beginning 240 days after such date of enactment; and
“(III) $20,000,000, beginning 360 days after such date of enactment.
Assuming the bill passes by the end of June, that would give U.S. retail forex dealers until the end of October to increase their capital to $10 million. Then they would have until February 2009 to increase it to $15 million and then June of 2009 to reach the full $20 million.
Introducing brokers will also need to get registered - their capital requirement will probably be announced in the near future.
The bill also creates a separate registration category for Forex Dealers and gives the CFTC tremendous leeway in crafting rules governing this new financial services category.
With this new found power, I expect the CFTC to come up with even more rules. Maybe tougher margin requirements, segregated customer accounts?
Over the next year, expect alot of smaller brokers that fail to meet the capital requirements to disappear. Make sure you are trading with a well capitalized Forex Broker.
The full language is now available at the House of Representatives website:
http://agriculture.house.gov/inside/FarmBill.html
Title XIII (page 548) is the part of the bill that references the forex industry. Note the following language as it pertains to adjusted net capital requirements for forex dealers:
http://agriculture.house.gov/inside…Conf/CRlang.pdf
Posted in Farm Bill FX, Farm Bill, Insight
content rss
May 28th, 2008 at 3:27 pm
“Retail FX traders should rejoice because the wild wild west of trading is finally being reined in” Yeah, great. Good to know that only a few large brokers will now rule the FX industry. No more small firms with better pricing, no more innovative platform features, no more competition. Just the same 6 firms that started the industry and stole from all the clients before there was any regulation. As far as small firms fleecing clients……do your homework. If the sales pitch sounds too good to be true, then it si too good to be true. I’ll take tight spreads and solid customer service (and make my own decision of broker), than have to go to one of the remaining giants who have the NFA in their pockets and do not care about us small clients. Open an offshore account and trade with UK brokers is a better option