After months of speculation, the CFTC finally released the rules regarding retail foreign exchange (Forex) transactions. The rules implement provisions of the Dodd-Frank legislation and provides the CFTC with broad authority to regulate Forex transactions. The rules are effective as of October 18, 2010.
In regards to leverage, there was a compromise to address the 10,000+ letters written by the public to the CFTC after they proposed a leverage reduction from 100:1 to 10:1. Leverage on major currency pairs was capped @ 50:1 while leverage on non-major pairs as capped at 20:1.
In addition, Introducing Brokers (IB’s) and marketers will now be required to follow the same rules as “Guaranteed IB’s (GIB’s)” in the Futures industry. This means that an IB will now only be able to work with one futures commission merchant (FCM
) or retail foreign exchange dealer (RFED). This will effect organizations that have IB agreements with multiple firms.
The net capital requirements for FCMs/RFEDs will remain at $20 million. The CFTC has left room for further additions to the ruling based on the Dodd-Frank wall Street Reform and Protection Act. This piece of legislation has spooked the equities markets so who knows what interpretations will come out in their ruling for retail Forex.
It looks like the damage or the effects of increased regulations has already had its impact as many retail Forex traders are looking outside the US for more favorable trading conditions, specifically access to higher leverage. Forex brokers that offer DMA (Direct Market Access) without restrictions on trading or reduced leverage. Companies like Divisa Capital
that partner with Currenex can offer these traders a safe and secure alternative for individuals interested in trading the Forex market.