Hi everyone

I’m trying to get all the pieces together of the consequences that yesterday’s decision by the CFTC regarding leverage - 50:1 in majors and 20:1 in exotics - will have in the US and world wide Retail Forex Industry.

I’m one more that considers that 50:1 is not as good as 100:1, but it is a lot better than 10:1, which we all think that would have ended the retail Forex in the US.

But at the same time, I’m afraid that as it states Michael Cairns, CEO at FX Solutions: “This leverage reduction could have a negative impact on the current make-up of the retail client base in the US as foreign nationals seeking higher leverage trade elsewhere”. But he adds: “It could attract a whole new breed of clients that had a perception that the industry was a little lax on the regulation side.”

But what it is really puzzling me is that while Bart Mallon at Mallon P.C. considers with a “probably not” the possibility that US traders will be able to move their accounts overseas. Meanwhile, InterbankFX in its public note states: “Beginning October 18, 2010, overseas brokers will no longer be able to service U.S. customers.”

No one has spoken about this yet, but I know many many US traders that have already moved their account elsewhere… What will happen now?

Francesc

1. The Press:
Retail Forex Industry Wins Some In CFTC Leverage Rules
By Dow Jones
The booming retail foreign-exchange industry won a partial victory after federal futures regulators decided to back off a plan placing much stricter limits on borrowed funds used to trade currencies.

In sweeping new retail forex rules unveiled late Monday, the Commodity Futures Trading Commission said it had scrapped a proposal to reduce the amount of borrowed funds that investors can use to trade forex contracts to 10-to-1, from the existing 100-to-1 for major currencies.

Instead, the agency said firms can’t offer a ratio of more than 50-to-1 for major currencies or 20-to-1 leverage for the more exotic variety. The National Futures Association, which self-regulates the industry, would be given some discretion to make adjustments to the leverage rule within the CFTC’s minimum security deposit parameters. The rule also could be adjusted by regulators once a year.

Read Also:
50:1 leverage lives! - FT Alphaville (blog)
Backlash prompts rethink on forex leverage - Financial Times

2. The Retail Forex Industry:

Interbank FX Supports CFTC Final Rules Regarding Retail Forex Transactions
As many of you are aware, the U.S. Commodity Futures Trading Commission (CFTC) announced today final regulations regarding off-exchange retail foreign currency transactions. These rules are supported by Interbank FX, LLC, in providing an enhanced regulatory environment that will help protect retail forex investors and will also create a level playing field for all rules and regulations within the United States.
The new rules will impact thousands of U.S. customers with millions of dollars invested in overseas brokers.  Beginning October 18, 2010, overseas brokers will no longer be able to service U.S. customers.  These rules ensure U.S. customers will receive the protections afforded by U.S. regulations.  Interbank FX has invested significant resources to make our trading platform, MetaTrader 4 (MT4) U.S. compliant for newly passed FIFO rules by the National Futures Association (NFA).  We believe we have one of the only NFA/CFTC compliant MetaTrader 4 platforms available. We allow all types of trading and all types of Expert Advisors to trade on our platform.
Interbank FX has continually supported the original Farm Bill of 2008, allowing the CFTC more authority over forex dealers. Because of this, we’ve foreseen such potential CFTC regulation changes, paving the way for our U.S. entity to be equipped with efficient operations, technology and overall transaction transparency to serve our growing customer base. For over two years, we’ve mandated all US solicitors and Money Managers to be registered with the CFTC and members of the NFA, anticipating the changes in the regulatory framework that have been published today.
In addition, we believe the CFTC has reached a reasonable compromise with the Forex Dealer Coalition (FXDC) regarding leverage requirements–making 50:1 leverage available to all U.S. customers. This compromise on leverage, as opposed to 10:1 in the proposed rules, allows the United States forex community to remain competitive with global opponents.
We consider these rules to be in the best interest of our customers, and incessantly strive to improve industry standards while accommodating customer expectations. That’s how we do business. That’s our culture. That’s our technology.
The IBFX Family

Forex Firm PFGBEST® Commends CFTC Final Foreign Exchange Market Rule
CHICAGO– PFGBEST President Russ Wasendorf, Jr. today affirmed the firm’s respect for the Commodity Futures Trading Commission (CFTC) final rules for retail foreign exchange market participants.
“As a firm that has always been registered, we strongly believe that the new rules finalized this week for retail foreign exchange investors help protect the American public and the legitimate, registered, compliant industry purveyors of foreign exchange products and services. We commend the CFTC for its hard work and ability to mark this first final rule from the Dodd-Frank financial reform bill in such a timely way. We believe that the CFTC has wisely weighed these rules and that they will ensure that American investors are not pushed to overseas markets, which have less protection. PFGBEST diligently adheres to all CFTC and National Futures Association (NFA) parameters and we congratulate both agencies for their diligence in serving the interests of customers who look to them for ensuring continued access to competitive, transparent markets.”
PFGBEST is a rapidly-expanding global financial services and technology firm, specializing in electronic trading, futures, foreign exchange, and managed accounts. The company is also an industry leader in investor education, and it offers numerous free webinars each week attended by hundreds of people wishing to further their knowledge and skill in trading, charting, customizing their screens, comprehending various government reports, enriching their understanding of trading psychology and many other topics.

3. The Lawyer

Mallon P.C
Clarification on CFTC Final Retail Forex Regulations Forthcoming
…
Can traders move their forex trading to SEC registered broker dealers to get higher leverage? Probably not.  While the SEC will have jurisdiction over broker-dealers who want to offer retail forex, it is unlikely that the SEC will (under its own rulemaking) allow more leverage than the CFTC.  The SEC would likely defer to the CFTC with respect to the leverage requirements.  Also, FINRA recently proposed a leverage requirement for its member firms which was much lower than the current CFTC regulations.

Can individuals create accounts (either individually or through offshore companies) at offshore forex dealers in order to access higher leverage overseas? Probably not. The major intent of Dodd-Frank and the final CFTC regulations was to keep U.S. citizens from trading with overseas brokers.  It is likely that the CFTC and NFA are going to take a hard stance on this issue.