Regulatory Roundup
SDRs would also be bound to accept all data in their selected asset class(es), protect the confidentiality of the data, and be prohibited from making commercial use of their data.
Another significant rule finalized this summer is 17 CFR Part 180, “Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices - Prohibition on Price Manipulation.” It expands the Commission’s current enforcement powers. Te rule “prohibits manipulative and deceptive devices and contrivances, employed intentionally or recklessly, regardless of whether the conduct in question was intended to or did create an artificial price.” Previously, manipulation needed to be intentional and successful to fall afoul of regulation. Te CFTC has included an exception for good-faith mistakes and simple negligence. Te rule also clarifies the Commission’s authority to prohibit price manipulation on commodities and swaps.
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Te NFA, the futures industry’s self-regulatory organization, has been busy adding to and adjusting its own regulations to keep pace with new rules handed down from the CFTC. Tis summer it issued an alert to members engaged in retail forex activities, notifying them of changes made to NFA requirements to comply with Dodd-Frank. Tese amendments affect NFA Bylaws, Compliance Rules, Code of Arbitration, and three Interpretive Notices, and will go into effect on October 1, 2011.
One change amends Bylaw 306 and Compliance Rule 2-39 to eliminate Forex Dealer Member exemptions. Now, all NFA members engaged in retail forex transactions must comply with NFA Forex requirements. Te only entities still able to claim exemptions will be Futures Commission Merchants (“FCMs”) that only use over-the-counter forex trading to hedge currency risk for other exchange traded transactions that are settled in foreign currencies. Another changes Bylaw 301(j) to require firms engaged in retail forex activities firms to have at least one principal that is registered as an AP and approved as a forex AP, in addition to current requirements. Tis person must pass the Retail Off-Exchange Forex Examination (Series 34).
Tere are additional changes to Compliance Rule 2-36 and Interpretive Notice 9053, Compliance Rule 2-10(b), and technical clarifications to the NFA’s Code of Arbitration Section 1, NFA’s Interpretive Notice 9058 entitled NFA Compliance Rule 2-40: Procedures for Bulk Assignment or Liquidation of Forex Positions: Cessation of Customer Business and NFA’s Interpretive
Notice 9060 entitled Compliance Rule 2-36(e): Supervision of the Use of Electronic Trading Systems.
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Te FDIC, OCC, and Federal Reserve have all released rules governing retail over-the-counter forex trading for regulated banks this summer. Te three rules are similar to each other and to rules published by the CFTC and SEC last year. Tey only intended to cover rolling spot forward transactions, not traditional spot or cash forward transactions. Tere is no lengthy registration process involved for banks to begin forex trading with retail customers. Instead, interested regulated institutions must file a written notice with their regulatory agency and obtain written consent before engaging in any retail forex activity. Te rules cover capitalization, margin, recordkeeping, and related requirements.
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On July 4th, European lawmakers moved to delay a final vote on the European Market Infrastructure Regulation (“EMIR”) until September. EMIR is the European Commission’s answer to the G-20 mandate to reform the over-the-counter derivatives market, and addresses many of the same issues as the Dodd-Frank Act in the United States.Te delay was related to disagreements between the European Parliament and the Council over the final shape of the bill. However, the bill’s sponsors are eager to finish EMIR this fall, whether or not the rest of the world has finished equivalent derivatives reform programs.
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Te UK Financial Services Authority will end the use of Title Transfer Collateral Arrangements (“TTCA”) in forex trading with retail clients. In December 2010, the FSA introduced a prohibition on TTCAs used in spread bets and contracts for difference (“CFDs”). Te proposed rule extends that prohibition to rolling spot forex contracts. TTCAs are agreements under which a client allows assets placed with a firm to be treated as collateral for any current or future obligations, essentially transferring ownership unconditionally to the firm. Tey are not subject to the FSA’s usual client money protections, including Client Assets Sourcebook (“CASS”) segregation requirements. Te proposed rule requires that all money and assets from retail clients be treated as client money and therefore be subject to segregation requirements. Tis gives retail clients a proprietary claim to their money and assets in case of a firm failure. Te Authority has also not ruled out the option of extending TTCA prohibitions to other investment types.
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