Swiss Banks to Accept US Clients After CFTC Deadline?


Michael Greenberg posted an article over on earlier today stating that:

MIG Bank – due to their bank status they will be able to accept US clients despite latest CFTC rules. The situation is not very clear for all offshore brokers now but MIG Bank were the first to announce publicly that they will be accepting US clients at least until July 2011.

I've been on the phone to Switzerland most of today trying to get confirmation of this report. I've even sent a few emails to MIG also, but I have yet to receive from them any clarification or confirmation of Michael's report.

Whilst I was at it I also called and emailed another Swiss bank, Dukascopy, to try and discover if they were prepared to clarify what their position is regarding existing or future US domiciled clients of theirs following the October 18th deadline for the introduction of the final CFTC rules concerning the regulation of retail spot forex in the United States. Again, I have yet to receive a reply.

I am sure any number of overseas brokers are even at this late stage in proceedings still deciding how to respond to the new rules. Michael seems to be implying that the two new Swiss "forex" banks are somehow in a better position than other overseas brokers to weather this particular storm in the case of "self directed" traders at least, though not managed accounts by the sound of it.

Personally I'm not so sure. I'm no lawyer, but here's my take. The critical change in the wording of the US statutes is in section 742 of the Dodd-Frank Act, which amends Section 2(c)(2)(B)(i)(II) of the Commodity Exchange Act. The CFTC helpfully provide their interpretation of all this dense legalese in their Questions and Answers document about their new rules. In a slightly roundabout way they state that:

A retail forex transaction is one between an eligible counterparty and a retail customer. Generally, retail customers are:

  • Individuals with less than $10 million in total assets, or less than $5 million in total assets if entering into the transaction to manage risk, and who are not registered as futures or securities professionals;
  • Companies, other than financial institutions and investment companies, with less than $10 million in total assets, or a net worth less than $1 million if entering into the transaction in connection with the conduct of their businesses; and
  • Commodity pools that have less than $5 million in total assets.

And that:

To offer to serve as a counterparty to an off-exchange retail forex transaction, an entity has to be one of several regulated entities:

  • United States financial institutions,
  • SEC-registered brokers or dealers (or their affiliates),
  • Financial holding companies,
  • CFTC-registered FCMs (or their affiliates), or
  • Retail foreign exchange dealers

Before Dodd-Frank that first line simply said "Financial institutions". It seems to me that Swiss banks are indeed "financial institutions", but they don't now qualify as "United States financial institutions". It's also not clear to me which of the other categories of entities permitted to act as retail forex counterparties apply to Swiss banks. Possibly they qualify as "regulated financial holding companies"?

There remains the possibility of course that even if my interpretation is correct, Swiss banks and other overseas brokers may simply choose to ignore the letter of the new laws, and US resident forex traders will remain happy to deposit their funds overseas. Both parties concerned will then have to wait and see what the CFTC will be able to do about that situation, using what it admits are currently inadequate resources.

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