New CFTC Forex Rules to Take Effect Later This Month

The Commodity Futures Trading Commission (“CFTC”) has released final rules to drastically revise the regulatory structure pertaining to off-exchange retail foreign exchange (Forex) transactions, which are set to take effect on October 18, 2010. The adoption of the new rules is the latest effort by the CFTC to significantly increase the regulatory oversight of retail foreign currency transactions. The controversial regulations were initially proposed by the CFTC in January pursuant to the authority granted to the CFTC under the Food, Conservation, and Energy Act of 2008 and have been adopted with minor changes. The CFTC’s power to register and regulate entities involved in retail Forex transactions was reaffirmed by the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required the CFTC to adopt final rules governing the registration, disclosure, recordkeeping, financial reporting, operational and other requirements applicable to entities under the jurisdiction of the CFTC.

The final rules will require registration with the CFTC and membership in the National Futures Association (“NFA”) for various entities involved in the retail Forex industry. Firms offering retail foreign currency contracts will be required to register either futures commission merchants (FCMs) or retail foreign exchange dealers (RFEDs). Additionally, persons who exercise discretionary trading authority over retail Forex accounts will be required to register as commodity trading advisors (CTAs) and firms operating pooled investment vehicles with respect to retail Forex will be required to register as commodity pool operators (CPOs).

These new registration requirements will expose firms coming within any of the above categories to significant disclosure, recordkeeping, and financial reporting obligations that could dramatically alter the structure of the retail Forex industry in the United States. For more information on the new regulations, contact us at (619) 278-0020 to schedule your consultation.

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