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NFA, CFTC announce approval of forex rules at joint press briefing
NFA and the Commodity Futures Trading Commission (CFTC) held a joint press briefing in Washington on August 26 to announce the CFTC's approval of NFA's new forex rules. The rules, which will become effective on December 1, provide additional investor protection against fraud in the retail off-exchange foreign currency markets.
At the briefing, CFTC Chairman James Newsome applauded NFA's rule-making efforts.
"We feel strongly that these rules represent a significant step in our joint effort to protect investors from fraudulent practices in the area of off-exchange retail forex markets," said Newsome.
The Commodity Futures Modernization Act of 2000 (CFMA) makes clear the CFTC's authority and jurisdiction to investigate and take action to close down entities selling illegal off-exchange foreign currency futures and option contracts to retail customers. Since the CFMA became effective in December 2000, the CFTC has filed 41 cases against forex entities, involving approximately $177 million taken from at least 3,500 victims.
Since the passage of the CFMA, however, a problem remains with unregulated individuals soliciting retail customers for forex transactions, particularly where a futures commission merchant (FCM) is a counterparty to the trade.
"For example, an FCM Member that's a forex dealer could profit from sales practices of unregistered entities that violate NFA rules," said Roth. "The FCM forex dealer could benefit from a fraud committed by an unregistered solicitor, and that's just not right. And we're not going to let that happen."
The new rules impose several regulatory requirements on forex dealer Members, including taking the responsibility for the activities of unregulated solicitors. The following is a summary of the new requirements.
Amendment to Bylaw 306
Compliance Rule 2-36
The amendment also extends many of the rule's requirements to other Members and Associates who solicit retail customers for or manage retail customer accounts with Forex Dealer Members. Another important change authorizes NFA to bring enforcement actions against Forex Dealer Members for the activities of unregulated third-party solicitors and account managers who solicit or introduce retail customers to the Forex Dealer Member or manage accounts for those customers.
Amendment to Bylaw 1301
Code of Arbitration
NFA Financial Requirements
NFA Members can find the rules and interpretive notice on NFA's Web site (www.nfa.futures.org).
NFA has begun an extensive education effort to help forex dealer Members understand their new regulatory responsibilities. Since a majority of NFA's forex dealer FCMs are located in the New York metropolitan area, NFA held a training session in its New York office on October 30. NFA has also developed a regulatory guide specifically addressing forex issues. The guide is available in the Compliance section of NFA's Web site.