The CFTC published final regulations concerning off-exchange retail foreign currency transactions, which implement provisions of Dodd-Frank Reform Act and the Food, Conservation, and Energy Act of 2008 - together, they provide the CFTC with broad authority to register and regulate entities wishing to serve as counterparties to, or to intermediate, retail forex transactions.  The final rules become effective 10/18. 

These rules put in place requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital and other business conduct and operational standards.  They specifically require the registration of counterparties offering retail forex contracts as either FCMs or RFEDs (retail foreign exchange dealers), a new category of registrant. 

Persons who solicit orders, exercise discretionary trading authority or operate pools with respect to retail forex also will be required to register - either as IBs, CTAs, CPOs (as appropriate), or as associated persons of such entities.  “Otherwise regulated” entities - e.g., U.S. financial institutions and SEC-registered B/D's - remain able to serve as counterparties in such transactions under the oversight of their primary regulators.

The final rules include financial requirements designed to ensure the financial integrity of firms engaging in retail forex transactions and robust customer protections - e.g., FCMs and RFEDs must maintain net capital of $20mn plus 5% of the amount, if any, by which liabilities to retail forex customers exceed $10mn.  Leverage in retail forex customer accounts will be subject to a security deposit requirement to be set by the NFA within limits provided by the Commission.  All retail forex counterparties and intermediaries will be required to distribute forex-specific risk disclosure statements to customers and comply with comprehensive recordkeeping and reporting requirements.   [CFTC PR 5883-10, 8/30]