NFA Guidance on CFTC's Final Forex Regulations


The National Futures Association has just issued additional guidance to it's members about the CFTC's Final Forex Regulations. In its latest notice to members the NFA says that:

NFA staff has received a number of inquiries from Members seeking further guidance and clarification on certain requirements. Based on further consultation with CFTC staff on Friday, October 8th, this Notice provides additional guidance on the following areas:

  • Risk Disclosure Statement Required by CFTC Regulation 5.5
  • Qualifying Institutions for Holding Assets Equal to Retail Forex Obligation
  • IB, CPO and CTA Registration
  • Other Registration Issues

Regarding the first bullet point the NFA explains that:

Firms are not required to provide this disclosure statement to, or obtain the disclosure document acknowledgement from, a customer who opened an account prior to October 18, 2010 (existing customers). Additionally, firms are not required to provide the most recent quarterly customer account performance information to existing customers unless the customer requests the information.

It looks as though Interbank FX jumped the gun slightly when they emailed their new risk disclosure statement to their existing customers, as they themselves now admit.

On the second bullet point the NFA clarifies that:

RFEDs are not a qualifying entity for holding…. assets equal to the total amount owed to U.S. customers for Forex transactions. Qualifying institutions in the U.S. are limited to U.S. regulated banks or trust companies, SEC registered broker-dealers that are also members of FINRA and CFTC registered FCMs that are also members of NFA.

To oversimplify slightly, if your forex broker is only registered with the NFA in the new category of retail foreign exchange dealer then they can't hang on to all your money themselves, they have to put it in a proper bank, or at the very least a registered futures commission merchant.

On the third bullet point the NFA point out that:

Otherwise regulated entities… do not have to be registered in the appropriate capacity with the CFTC in order to solicit retail Forex orders, manage retail Forex accounts or operate a retail Forex pool. This includes an otherwise regulated entity, such as a broker-dealer, that introduces retail Forex business to an FCM or RFED.

Again oversimplifying things slightly, if you want to advertise forex brokers to US residents or manage their money then you do have to be registered, but not necessarily with the CFTC.

Finally on bullet point 4 the NFA has this to say:

Every firm that is required to be registered as an FCM, RFED, IB, CPO or CTA in connection with its Forex activity must be approved by NFA as a Forex firm. All individuals who solicit retail Forex business or who supervise that activity must have taken and passed two exams. However, individuals who were registered as APs, sole proprietors or floor brokers on May 22, 2008, do not need to take the Series 34 exam unless there has been a two year gap in their registration since that date.

As we pointed out previously, from October 18th if you want to advertise forex brokers to US residents you need to be registered with the NFA, and to do that you need to have passed an exam on exchange traded futures as well as one on forex.

I trust that's all crystal clear now. If not you might wish to sign up for an IBFX webinar tomorrow afternoon, in which they are apparently going to try and explain all this stuff!

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