10:1 could be the new leverage rule

Hi Gcapman,

FXCM is actively lobbying against it, and a statement from the industry leaders may be forthcoming.

Despite this, traders that feel strongly about the proposal (whether for or against) need to submit their comments to the CFTC if they hope to see any change to the proposal. You can contact the CFTC by sending an email to secretary@cftc.gov with “Regulation of Retail Forex” in the subject line. Your message will be posted unchanged on the CFTC website. The changes are being made according to what the CFTC sees as being in the traders benefit. The CFTC is not used to receiving comments from the public on the same scale that other government agencies do such as the FTC or FCC when they make proposals. If enough traders comment, it can make a difference.

If you want to write your local Congressional leaders you can do that as well to bring extra attention. I'm sure their attention is elsewhere at the moment seeing that the forex proposal was submitted the same day that the oil and gas trading caps were announced.

Regardless of the outcome, FXCM's global presence means that US traders will still have the option to trade through FXCM UK which is regulated by the FSA.

Jason

 

Jason,

Your prompt and robust response is greatly appreciated.

But the UK division also lowered its leverage following the US (in Nov 2009) so why would FXCM UK traders not think that their leverage would be lowered even more - should the CFTC suggestion be enacted?

 

Wouldn't you think that the chances of this proposal getting approved are extremely high?

I remember the Treasury Secretary officially stating he wants the currency markets stabilized a few days ago -- that is some serious lobbying power!!

 

The change in how margin was calculated for FXCM UK was a decision made by FXCM and not in response to regulations by the FSA. The decision was made to have margin calculations based off of the notional amount you are trading rather than the base amount. For example, if trading 10k EUR/USD, you would have to put aside 0.5% of roughly $14,497 at the current EUR/USD exchange rate rather than putting aside 0.5% of the 10,000 base amount. Despite this change, FXCM UK still offers 0.25% margin (400:1 leverage) for micro accounts and the lowest margin for standard 10k accounts is still 0.50%.

To reiterate from another post on why we do not believe the FSA will make such a proposal....

The CFTC has a rules based system setup and the rules are one size fits all. If you meet requirements on the checklist you can open a forex brokerage. $20 million in minimum capital, check! customer identification program, check! etc. The FSA operates differently in terms of how they create their rules. They take a closer look at each broker not only at the minimum amount of capital the company has but at the amount of capital they have even exceeding the basic amounts. They also look at the experience of management in the financial industry, how long the company has been operating, how long the systems have been running and reliability, etc. all in order to gauge what a broker is allowed to do or even if they will license the broker. Someone off the street without any previous experience in the financial industry could open a forex brokerage if they met the US guidelines; whereas, it would raise red flags with the FSA even if they had the capital requirement. So the mindset is much different in terms of their regulatory approach in what they allow each firm to do.

-Jason

(PS I'll answer any additional questions tomorrow)

 

recent changes to fx regulation Only in the province of British Columbia, Canada has meant
that BC residents are limited to a choice of 3 fx brokers, and a 100:1 leverage limit
UK companies such as FXCM and Alpari will not accept an account application from BC
residents due to the BC regulations. FXCM closed their Canada operation in September 09

Jason Rogers, can you explain how it came about and why BC residents can't open accounts
with FXCM UK ?

while the UK currently still has 4/500 leverage, if a single province in Canada can influence
UK brokers you can be certain that if new CFTC regulations are adopted such as 10:1 leverage
and the US wants the UK to comply, the UK Will comply

as far as alternates are concerned, while at present i have an account with Oanda using
50:1 leverage, i've yet to take a leap to higher leverage ( i discovered FXCM and Alpari's
restriction when attempting to apply for an account ) with an 'offshore' broker particularly
'Russian' and 'Caribbean' brokers (must qualify Alpari Moscow is one of the oldest fx brokers
and has UK and US branches) i am more confident now about Some brokers in Cyprus due
to: http://www.elitetrader.com/vb/showthread.php?s=&threadid=184795
and point to Windsor Brokers as one example of a 'home grown' Cyprus broker who has
always complied with FSA, CySec and MiFID regulations

it's probable then if the CFTC/US limits fx leverage such regulation will appear in the UK and
throughout the Eurozone, Japan ? 'Asia' ?

from my overly suspicious pov, i have to wonder if the US is trying to prevent - specifically
selling of the US $ at a time when many feel there will be a collapse of this currency

so far as leverage is concerned, imo it's not leverage that kills but the 'trading system'
high leverage means a fast death, low leverage is 'death by a thousand cuts', in either case,
if the trader is unable to trade profitably, they will 'die'

 

Stop confusing things. This has nothing to do with currency futures, it's spot market only.

 

Can you comment on the legality of allowing US retail customers to trade in your UK accounts if they are not accredited investors by US standards? I was told by one UK broker (a big one) that they are required to honor the CFTC/NFA guidelines and not permit US retail traders from opening accounts unless they are wealthy individuals. Is this true, or was this broker clueless/blowing smoke?? I am unaware of any law that bars US retail traders from trading in Swiss or UK accounts, but figuring out the regulations is not easy unless you're a seasoned investment lawyer.

 

I have a bad feeling that we'll be trading with 10 times leverage at the end of this quarter. They seem to be pretty serious about this crap

--------------------------------------

Watchdog closes retail forex loophole
By Gregory Meyer in New York
Published: January 12 2010 19:26 | Last updated: January 12 2010 19:26
A US markets watchdog is pushing deeper into fast-growing retail foreign exchange markets with rules that clarify a regulatory grey area.

The Commodity Futures Trading Commission will spell out its recently acquired powers to fight fraud in off-exchange currency trading available to small investors in a proposal to be published as soon as this week.


The CFTC: spelling out jurisdiction of spot trading
EDITOR’S CHOICE
High frequency trading under SEC scrutiny - Jan-12

Industry eyes lawsuits over pension investment - Jan-10

Iosco pact reshapes market enforcement - Jan-08

Lex: Towers Watson - Jan-04

Decade: asset management and regulation - Jan-03

Investor reforms must tackle root causes - Dec-13

Its move finally closes a loophole in place since 2004 when a US appeals court ruled that the agency lacked jurisdiction in foreign exchange spot trading.

Congress addressed the loophole in 2008 but left the CFTC to write the regulations.

“[The CFTC] is getting the rules down on paper, because they’ve realised, ‘If we don’t delineate the rules, they get bent,’” said Glenn Stevens, chief executive of Gain Capital, the US-based company that runs Forex.com, an online trading site.

The rules bring fresh oversight to a small but expanding portion of the $3,700bn-a-day global foreign exchange market, according to Aite, the consultant.

Retail traders make up more than $125bn of that volume, up from $10bn in 2001, it estimates.

The CFTC has announced several foreign currency fraud cases in the past year.

In November it charged two salespeople with defrauding $190m from customers and allegedly spending it on seven luxury cars, a submarine, a houseboat and gambling.

After Congress agreed that the loophole should be closed, the National Futures Association, an industry-funded self-regulatory group, also tightened rules for retail currency dealers.

Last year the association raised dealers’ minimum capital requirements from $5m to $20m.

That move hastened industry consolidation and the number of NFA-registered foreign exchange dealers fell from 41 to 18.

The latest proposed rules will strengthen the CFTC’s authority over companies selling currency trading to retail traders, forcing them to register with regulators and disclose more to potential customers, according to a government official familiar with the proposal.

The CFTC would also get clear jurisdiction over most spot currency trades.

“All salespeople and everybody that deals with retail forex have to be registered with the CFTC,” said Larry Dyekman of the NFA.

“That’s going to be a big change to the forex industry.”

Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web

 

So are we friend, so are we. For some of us our livelihood depends on this. You try to take away someone means for providing for their family and you are messing with one dangerous person who will fight back, and there are many to be effected.

 

What does any of this have to do with leverage? Does the CFTC approve the leverage that is set by futures exchanges? I don't know the answer to that I'm just asking.