Introducing Brokers Form Their Own Coalition

Following the example of the forex dealers a few weeks ago, a group of 6 introducing brokers have banded together to form the Introducing Brokers Coalition against the CFTC proposals for “Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries”. Unlike the forex dealers, first on the IBs list of proposals they would like to see changed is:

That a Forex IB must enter into a guarantee agreement with a CFTC-regulated Forex Dealer Member (FDM), along with a requirement that the Forex IB may be a party to only one guarantee agreement at a time.

By asking IBs to enter into an exclusive arrangement with only one FDM, IBs are limited in where they can refer customers, which is not aligned with the best interest of the customer. Independent IBs bring a valuable service to the retail trader. By carefully matching a trader’s style and needs with the right broker as it relates to spreads, trading platforms and customer service offerings, independent IBs help retail customers make the decision that’s right for them.

The wording of the CFTC proposals doesn't seem to me to insist on "an exclusive arrangement with only one FDM", but they certainly seem to be trying to find a way of closing down the numerous "forex broker comparison" websites that you find all over the web these days.

The IB Coalition insist that:

The Commission is clearly of the opinion that all firms providing services to retail forex customers are bad actors intent on committing fraud; all retail customers are naive, unsophisticated and unsuitable to be trading forex; and “relatively few … trade profitably.”

It does not follow, though, that all firms providing retail forex services are bad and predisposed to commit fraud.

and the IB Coalition may well be correct when they say that in practice the CFTC will be:

Creating circumstances under which every forex IB will face an inherent conflict of interest between representing the best interests of its customers and the commercial interests of the dealer on which it must rely exclusively for its business survival.

The IB Coalition suggest that:

The CFTC revise the proposed rules to permit a Forex IB to operate either as an independent IB subject to the same minimum capital requirements that apply to a futures IB or as a guaranteed IB.

It will be interesting to see whether this late in the day the IBs will be able to get some Congressmen on their side and get this area of the new proposals amended.