The SEC issued an investor bulletin highlighting some of the most significant risks that foreign currency exchange (forex) transactions may pose for individual investors.  This release follows recent adoption of an SEC interim rule that provides the Commission with time to collect additional information regarding the retail forex activities of broker-dealers and to take such regulatory action as may be appropriate to reduce forex risk for investors purchasing or selling foreign securities.  Had the interim final rule not been issued, retail forex transactions would have been prohibited as of 7/16/11, as mandated by Dodd-Frank.

The forex market is a large and generally liquid financial market. Banks, insurance companies, and other financial institutions as well as large corporations use the forex markets to manage the risks associated with fluctuations in currency rates. However, the risk of loss for individual investors who trade forex contracts can be substantial.

Last week, the SEC an interim final temporary rule to permit registered broker-dealers to continue to engage in retail forex transactions for up to 1 year under the existing regulatory framework that applies to them when effecting such transactions. 

For further details, go to:   [SEC PR 11-150, 7/20/11]