Regulatory Roundup
with the other new rules. Te changes are part of the NFA’s ongoing efforts to bring greater transparency to retail Forex.
t 4USJDUFS SFRVJSFNFOUT GPS TFHSFHBUFE DVTUPNFS GVOET While some NFA rule changes are prompted by general considerations, others may be traced to specific entities and events. Te so-called “Corzine rule” clearly falls within the latter category. Following the implosion of MF Global and the ongoing effort to recover customer funds, the NFA proposed new requirements governing the segregation of customer funds by Futures Commission Merchants (FCMs).
Under the rule, FCMs must have written policies and procedures governing the maintenance of the FCM’s residual interest in customer segregated funds. Te FCM must specify a dollar or percent amount that it seeks to maintain as its residual interest in customer segregated funds. In order to prevent the wholesale transfer of customer funds to MF Global’s own accounts that preceded that firm’s bankruptcy, withdrawal of more than 25% of the FCM’s residual interest in customer segregated funds must be accompanied by written approval by the CEO, CFO or other designated principal. In addition, the NFA must receive written notice of the withdrawal, including reason, amount and recipient.
While the NFA may succeed in reassuring traders that the money they deposit with FCMs is safe, it is unclear how the new rule will actually prevent misuse of client funds. Had MF Global been subject to the rule, its only effect would have been to make it more difficult for Jon Corzine to claim that he had no knowledge of the withdrawals. Te rule may contribute to clients’ peace-of-mind and the amount of regulatory red tape, but it is difficult to divine its potential benefits.
t "MMPDBUJPO PG #VODIFE 0SEFST GPS .VMUJQMF "DDPVOUT Another rule change, issued on April 18 and effective June 18, affected customers of Commodity Trading Advisers (CTAs) who place bunched orders on behalf of multiple clients using a percentage allocation management module (PAMM). Te rule requires the quantity of lots in a bunched order to depend on the equity in each individual sub-account, not overall master account equity. In addition CTAs may no longer allocate fraction lots to sub-accounts; regular lots must be allocated instead, using a non-
preferential, pre-determined allocation methodology.
Many CTAs impose restrictions on client can deposits and withdrawals. When a client withdraws funds that are tied up in a bunched trade, his positions are reallocated to other clients, who then face greater potential losses. Te new rule seeks to remedy this perceived injustice by requiring CTA’s to allow clients to make deposits and withdrawals in a fair and timely without affecting other customers in the same program.
Finally, the new rule seeks to improve transparency and prevent abuses such as fraudulent allocation of trades, by requiring FCMs and RFED’s receiving a customer order to prepare a written record of the order immediately upon receipt. Te goal is to create an audit trail from the time an order is placed until it is executed.
By introducing this rule, the NFA is signaling that it views the use of PAMM as equivalent to operating a pool, essentially forcing CTA’s to choose between registering as Commodity Pool Operators (CPOs), or treating sub-accounts as individual accounts. In light of the costly technical changes required to comply with the rule, there is a distinct possibility that it will limit growth in what has been a thriving business for Forex brokers.
FX regulation around the world
t 6, 5XP OFX FOUJUJFT UP UBLF QMBDF PG '4" Te biggest news in UK FX regulation this year is the dissolution of the UK Financial Services Authority (FSA) into two separate entities by early 2013. Te Prudential Regulation Authority (PRA) will be a subsidiary of the Bank of England, and will be responsible for the regulatory functions currently carried out by the FSA. Although the split has not yet taken place, the FSA has already moved to a “twin peaks” operating model as of April 2, 2012, in order to prepare for the change. Despite its efforts to make the transition as smooth as possible, there are indications that it may turn out to be rockier than hoped, with much current staff leaving the agency. With the split itself intended to restore public confidence after the 2008 crash, it is unclear whether the reorganization will reassure investors.
t 'PSFY UP CF SFHVMBUFE JO 3VTTJB CZ With a multitude of both individual and institutional traders, Russia has long been a Forex stronghold. In
july 2012 e-FOREX | 33
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