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September 26, 2005
NFA announces approval of new forex rule and several rule amendments
September 26, Chicago - National Futures Association (NFA) announced today that the Commodity Futures Trading Commission has approved a new compliance rule and several rule amendments designed to protect retail customers from fraudulent practices in the off-exchange foreign currency (forex) markets. The new rule, Compliance Rule 2-39, and some of the amendments became effective immediately. The remaining changes will be effective on November 30.
Compliance Rule 2-39 prohibits all NFA Members who introduce retail forex customers to or manage retail forex accounts with any counterparty from engaging in illegal off-exchange transactions, fraud or conduct inconsistent with just and equitable principals of trade. The rule also requires these Members to supervise their employees and agents.
"These requirements previously applied only to Members who were doing business with Forex Dealer Members," says NFA President Dan Roth. "We developed this new rule to ensure that our Members and Associates who conduct retail forex business with other counterparties are subject to the same requirements."
The CFTC also approved amendments to NFA Compliance Rule 2-36, which will require Forex Dealer Members to provide their customers with written information regarding NFA's Background Affiliation Status Information Center (BASIC) system, including the Web site address, when the customer first opens an account and at least once a year thereafter. BASIC contains current and historical registration information concerning all current and former CFTC registrants, including name, business address and registration history in the futures industry. It also provides information concerning disciplinary actions taken by NFA, the CFTC and all the U.S. futures exchanges.
"Many individuals and firms that solicit retail forex customers on behalf of Forex Dealer Members are completely unregistered and unregulated," said Roth. "There are literally hundreds of these unregulated firms doing telemarketing of off-exchange forex transactions to retail customers, and in some instances the people making the sales pitches have been barred from the futures industry for sales practice fraud. Forex Dealer Members' retail customers should be aware of NFA so they can check the disciplinary background of firms and individuals and file complaints with NFA."
NFA also amended Sections 11 and 12 of its Financial Requirements and an Interpretive Notice to strengthen its capital requirements for Forex Dealer Members.
"The off-exchange retail forex market continues to grow dramatically," said Roth. "With this growth comes the need for stronger regulatory requirements to protect investors from possible fraud."
NFA is the premier independent provider of innovative and efficient regulatory programs that safeguard the integrity of the derivatives markets. NFA's BASIC system is offered free of charge and can be accessed 24 hours a day through NFA's Web site at www.nfa.futures.org or by calling NFA's Information Center at (800) 621-3570 between the hours of 8:00 a.m. and 5:00 p.m. CST.