SEC bans Broker-Dealers from retail forex transactions

LeapRate Exclusive… LeapRate has learned that the US Securities and Futures Commission (SEC) has quietly filed a notice indicating that as of July 31, broker-dealers will no longer be able to engage in leveraged foreign exchange transactions with retail traders.

The ban includes those brokers-dealers which are dually registered with the US Commodity Futures Trading Commission (CFTC) as Future Commission Merchants (FCMs).

So what does this mean for the 'FCM-only' brokers in the US, such as FXCM, Forex.com and Oanda?

And might the effective regulators of the retail forex brokers, namely the CFTC and NFA, follow suit and ban retail forex transactions?

https://www.leaprate.com/2016/05/sec...-retail-forex/

Oh my God...

What are they doin' down there ?

Trying to force people to stay with stock and futures trading only...?

WTF...

look like they wanna BAN retail forex trading

anything the u.s. regulators can't control like stock, options, futures and bonds they dislike it's all about control and money

So glad I've been trading offshore for 3 years. Did all the broker research, I have better spreads, execution and commission than anywhere in the US anyway. All 3 big brokers trade against you, hunt stops, freeze platforms, don't want to pay when you win, etc.. It actually will benefit traders using these brokers as they will be forced to go offshore if the US bans it completely. Anyone trading with a US broker is doing so through rose colored goggles anyway. Since they don't protect your funds in any way, shape or form, I do not understand why everyone doesn't see the benefit of offshore where you only need 10% of the deposit to execute the same size trade. Simply create your own forex account with the money you would deposit with a US broker, and deposit 10% of it with an offshore broker, send more when needed. In this way, if something goes wrong, you still have 90% of your trading capital.

If this is going to affect FXCM and Gain, then wouldn't their share prices have plunged? Which they have not. 80% of their business surely must be US based!

According to the report, it will not change anything, except bring them new business from the likes of Interactive Brokers, TD Ameritrade, etc. The speculation is it's just the first step and the NFA and CFTC will follow suit and completely eliminate retail forex in the US. In my opinion, this was the entire purpose of all the regulations in the first place. They certainly do not protect the trader, that's for sure.

The land of the free..

im gonna sue

This legislation does NOT affect those retail fx dealers aforementioned as this only affects retail FX dealers REGISTERED with SEC and NONE of the retail fx dealers as we know like FXCM, Gain, Oanda and etc. were ever registered with SEC; they are only registered with CFTC under the Frank-Dodd rule because somehow CFTC considers retail fx as derivative and lumped it under its jurisdiction. This is why the shares of none of those fx dealers are affected.

Or the likes of FXCM and Oanda can become a ECN like IB which does not act as a FCM and expand to other area of business like stock trading and etc. and become a real broker instead of dealers. If the ban is REALLY not touching the likes of IB or TD Ameritade then they are not cracking down on retail fx trading altogether then, they are just trying to get rid of market-maker dealers at the retail level. With spot fx being an OTC product, ultimately you are still dealing with market maker LP's at the institution level but the regulators don't dare to touch them.

This MIGHT not be a bad thing for us traders. It will depend on how they are playing it. Last time I checked Retail FX is a BILLION-DOLLAR industry in America, is it still so today after all those financial crisis that was actually brought up by those "regulated" institutions and recessions? And do they really give a shit about this BILLION-DOLLAR industry?

All it's coming down to is $$$, nothing else.

Interactive brokers will be the most notable victim of this.

WHY Interactive Brokers does not act as counterparties to leveraged retail FX transactions. They pass their trades directly onto LP's to execute and act just as a matching service in between. WHY would they be banned? I guess we will find out whether IB REALLY is an ECN or not when it comes to retail FX transactions. If it is, then it should still be allowed to carry on with its retail FX business. If not, then we know it's not an ECN either.

This is what the notice says:

What this effectively means is that only standalone CFTC registered and National Futures Association (NFA) member FCMs or retail FX dealers, as well as certain banks, may serve as counterparties in retail forex transactions.

It says that broker-dealers are not allowed to offer FX to retail clients (ECN or not). And IB is a broker-dealer. I suppose they will continue to offer FX in UK, SG and HK but not in the USA.

No it says it cannot be a COUNTERYPARTY to leveraged FX transactions in retail FX unless you are solely registered with CFTC or a bank. Read it again. It does NOT say it cannot offer FX transactions. Read it again. Don't read the leaprate title. Read the ACTUAL notice.

Counterparty means you actually take the other side of the transaction but IB supposedly acts as a pure broker that it just matches buyers with sellers and vice versa for retail FX transactions. so WHY wouldn't IB be allowed to continue?

The issue is not how they "act" in-house but rather how they are "registered" with the SEC. If they are a BD, then by the SEC stated deadline they will be out of the "Retail Forex" business. Emphasis on the word "Retail."

This is where it all began right here: http://www.sec.gov/News/PublicStmt/D.../1370539704543.

Commissioner Louis A. Aguilar, has been pushing this thing in the United States for years and he's been hell bent on proving his point that persons involved in "Retail Forex" have been hurt and will continue to get hurt unless his department or the United States Congress does something to stop it. This all comes straight out of Section 742(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibited "Institutions" from engaging "Retail" consumers on "Foreign Exchange" transactions - namely, OTC transactions.

This whole ball of wax boils down to the fictional and make believe regulatory nonsense that has been pull over the eyes of the vast majority of the American People, in a shameful attempt to cause them to believe that somehow or another the year 2008 will not happen again in this country. Nothing could be further from the truth. Any loss of capital by "Retail Traders" that has ever been recorded in the history of histories would never be enough to cause the 2008 economic implosion. Yet, these asinine Bureaucrats would have you believe that somehow, if they just "regulate" the Retail Forex Market just enough, that will protect Americans from the Evils of Wall Street.

The SEC has been sitting on its hot little pen since July 2011 on this matter. Aguilar, claims that he's deeply concerned with Broker Dealers engaging in "abusive sales practices" and that he just could not wait any longer for either Congress or the Industry to clean itself up. So, what does he do - he bans an entire point of access into Forex completely out of existence. Forget about the guys who were doing it right, let's just ban an entire segment of the entire national market - why the hell not - we're the SEC - we can do stuff like that.

Are FCMs Next?

No. Of course, not. All this does is clear the way for Bucket Shops to become Hyper Bucket Shops. That's all. This makes Bucket Shops like FXCM come out looking real good in the eyes of those who feel that they might not have very many choices left in the United States. So, here's what you can expect:

- More slippage and more price "engine" manipulation
- Less Leverage
- Higher margin requirements
- Increasing instances of hanging platforms during news and reports
- Even worse customer service with less competence (if that is even possible in the case of FXCM)

Hmmm. You would think they would "regulate" this crap and make the business more competitive and more efficient for the "consumer." If these Bureaucrats were truly thinking about "Consumer Protections" then they would be doing something about "Freezing Trading Platforms" and "Blacked Out Trading Execution" while the market moves 100 pips in 2.5 minutes. You would think they would go to work trying to solve the "Hanging Order that Just Refuses to Execute" problem on an NFP report.


The Long Term Solution

Get your trading in gear. Grow your accounts. Get off Retail Platforms in the United States. Establish your legitimate business entity in a jurisdiction that does not act as if you were living under De facto Martial Law and start trading on an Institutional Platform with a Business Address and a Business Entity that has absolutely nothing to do with the United States of America.

The Short Term Solution

Oanda.

You may not like their platform. You may not like their spreads. You may not like Java. You may not like their charts. You may not like what their employees eat for dinner but at this point - who cares. It is Oanda, or bust if you happen to be a Retail Trader with the very unfortunate reality of a United States presence. Emphasis on the word "Presence" or "Physically Located." Do your homework on those phrases.

Land of the free?
Home of the brave?
Life?
Liberty?
The pursuit of happiness?

Really. Is this what that looks like? From where I'm sitting even Toto has left Kansas.

As I explained in an earlier post, simply trade offshore. I have done so for over 3 years, tested several brokers and been exclusively with one for 18 months. Sure, they are not regulated, but the US regulations do absolutely nothing to protect the trader. My broker is ECN, yet has less slippage than any market maker here in the US. I do not experience freezing platforms, hanging trades, none of the things the "regulated" brokers get away with. Since funds are not protected in the US, it just made sense to me to open a bank account for my forex capital with the same amount I would need to deposit with a US broker and I simply use 10-15% of that with the actual broker because margin requirements are so much less. If something goes wrong with the broker, I still have 85% of my forex capital protected through FDIC. If something goes wrong with a US broker, I lose all of my capital!!!! People wake up, there is not one single benefit of trading with a US broker!!

That is true. Retail Accounts are not as protected in the United States as brokers like FXCM would have you believe. If they were, then brokers like FXCM would have much higher excess net capital values and demonstrate some commitment to section 30.7 accounts. Oanda, has nearly twice the excess net capital as FXCM. IB has over 2 billion worth of excess capital and was the safest and most secure retail forex intermediary in the entire United States until this little gem from the SEC came along. Now, IB will be gone. They are not giving up all their other tie-ins to hundreds of billions per day in liquidity through other markets just to maintain a Forex branch.

The only way I can see IB remaining in the game is to literally create a new Forex Business with its own FCM registration footprint, but I just don't see that ever happening. I could be wrong - but I seriously doubt that will happen.

Section 742(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) prohibits a regulated financial institution from entering into certain foreign exchange transactions with retail customers (Retail Forex).

Yeah but with brokers like IB, they are NOT entering into certain foreign exchange transactions with us. Our orders have supposedly been passed to the LP's to be executed so our foreign exchange transactions were really entered with the LP's which are institutions that are probably authorized by SEC to carry out FX transactions with retail customers, NOT directly with IB. Whether IB is registered as a BD or not is irrelevant; the fact is it is NOT engaging in the "abusive sales practices" against investors in retail fx transactions and that to me is what this rule is trying to address which is what we traders have always been complaining about, the market-making practices, the trading against us, the stop-hunting, the requoting, the execution delays, the slippages, the widened spread. And this is what SEC is trying to stamp out.

And this is in line with what Europe is trying to do right now. http://financefeeds.com/no-trading-c...-investigates/

And the biggest irony is that the REAL guilty parties of "abusive sales practice" in retail fx transactions that have been engaging in those practices for years and will still continue to be engaging in them, Gain Capital and the smaller ones will actually still remain in large, completely unaffected by this crap "legislation" and sill carry on their business as usual simply because they are not with SEC and there is nothing that SEC can do about it if CFTC doesn't want to take orders from SEC.
All this piece of shit notice by the SEC does is hurting the more honest brokers like IB who have not been engaging in "abusive sales practice" but just happen to be registered with the useless incompetent SEC but at the same time completely powerless against the real abusive market-makers who have been trading against us traders for years, the very unscrupulous dealers that it purportedly want to address.

If IB is REALLY made to stop offering retail FX, then maybe IB should just drop its registration with the SEC and become solely registered with CFTC/NFA instead. And then maybe we need to get rid of the SEC. It's a very redundant regulatory body that was totally incompetent in investigating REAL financial scandals like Bernie Madoff Ponzi scheme that defrauded the investors public $70 BILLION and was completely useless in preventing the biggest financial crisis of 2008 brought on the REAL fraudster banks and mortgage lending institutions and the rating agencies and never did anything else. All the other countries only have ONE regulatory body. WHY does US need to have two? There is so much overlap between SEC and CFTC anyway.

I still don't believe that IB is affected by this SEC notice. I actually saw a comment somewhere that states that as long as IB does not act as a counterparty to your FX trades, they would still be allowed to offer FX brokerage services to retail clients which would make sense. This "Notice" is REALLY trying to address the "abusive sales practice" by the BD's that DO act as counterparties to retail forex transactions so unless IB is guilty of that too unbeknownst to us traders, otherwise WHY should it be punished by being banned?

The ONLY BD's that REALLY should be banned are the ones who were and are acting as the counterparties to retail FX transactions like Forex.com from Gain Capital but they are still being allowed to continue just because they are solely registered with CFTC and not with SEC.

Hopefully this piece of shit Notice is Much Ado About Nothing by an incompetent organization based on some draconian out-of-touch-of-reality Frank-Dodd rules which hopefully will be revamped by Donald Trump if he sticks to his campaign promise.