forex

New Rule Requires Better Reporting to Retail Forex Investors

Forex Dealer Members (FDMs) are subject to NFA oversight because they are required to be registered with the CFTC and also to be members of the NFA. On June 1 of this year, FDMs will need to comply with heightened disclosure requirements to their retail forex investors. These greater requirements are designed to promote greater transparency into the retail investors’ account activity and balances. The new rule is Rule 2-44. More information can be found in the NFA release below:

NATIONAL FUTURES ASSOCIATION
FOREX CUSTOMER ACCOUNT STATEMENTS

In these challenging times, the need for investors to monitor and understand the activity occurring in their trading accounts has never been greater. National Futures Association (NFA) believes that customer account statements should contain clear, concise and complete information. The more difficult a customer account statement is to understand, the easier it is for a broker or account manager to mislead a customer about the value of a customer’s account and the success of the customer’s trades.

In an effort to provide retail forex customers with clearer, more uniform confirmations, daily statements and monthly statements, NFA has developed specific customer reporting requirements for its Forex Dealer Members (FDMs).

FDMs must currently provide written confirmations to customers within one business day after any activity in the customer’s account, including offsetting transactions, rollovers, and deliveries, and these confirmations must include details of the transaction and any related costs. Effective June 1, 2009, a new rule clarifies that activity requiring a confirmation includes option exercises, option expirations, trades that have been reversed or adjusted, and monetary adjustments. The new rule specifies that the confirmations must contain the following information regarding the transaction and the funds in the account:

• Transaction date;
• Transaction type (e.g., new position, offsetting position, rollover, adjustment);
• Currency pair;
• Buy or sell (if a new or offsetting position);
• Size;
• Price or premium (for new or offsetting positions or price adjustments);
• Price or premium change (for price adjustments);
• Monetary adjustments (debit or credit);
• Net profit or loss for offsetting positions; and
• Charges for each transaction (e.g., rollover interest and/or fees).

In addition, FDMs are currently required to send monthly statements to all customers who have accounts that have open positions at the end of the month or changes in the account balance or equity since the prior statement. Quarterly statements are required for all other open accounts. The new rule states that monthly or quarterly statements must contain the following information regarding the transactions during the reporting period and the funds in the account:

• The account equity at the beginning of the reporting period;
• All initiating or offsetting transactions, deliveries, option exercises, or option expirations that occurred during the reporting period, with the following information for each: date, currency pair, buy or sell, size, and price or premium (with any price or premium adjustment noted);
• All open positions in the account, with the following information for each position: date initiated, currency pair, long or short, size, price or premium at which it was initiated (with any price or premium adjustment noted), and the unrealized profit or loss;
• All deposits and withdrawals during the reporting period;
• All other monetary adjustments (debits and credits) to the account;
• The amount of cash in the account (excluding non-cash collateral and unrealized profits and losses);
• A breakdown by type of all fees and charges during the period, including commissions and interest expense or rollover fees; and
• The account equity at the end of the reporting period.

As of June 1, 2009, FDMs must also provide daily statements showing the account equity as of the end of the day. FDMs may provide the daily statements online or by other electronic means as long as they are readily accessible to customers. FDMs may provide confirmations and monthly/quarterly statements online or transmitted by other electronic means if the customer consents to the specific method used.

Conducting Due Diligence

NFA reminds all individuals who trade forex to conduct business with a regulated forex firm - i.e., a bank, an insurance company, a broker-dealer or a futures commission merchant. If the firm is a futures commission merchant, it is required to be registered with the Commodity Futures Trading Commission and to be a Forex Dealer Member of NFA. You can easily check an FDM’s registration status through NFA’s Background Affiliation Status Information Center (BASIC), available through NFA’s website (www.nfa.futures.org).

Anyone who has any questions or concerns regarding their forex dealer should contact NFA either through our website (www.nfa.futures.org) or by calling our Information Center toll-free at (800) 621-3570 during normal business hours.

NFA is a self-regulatory organization subject to oversight by the CFTC. NFA’s primary mission is to protect investors and maintain market integrity.

Law and Regulations

CFTC Seeks Public Comment on Possible Changes to Regulations for Investment of Funds Deposited with Clearing Organizations and Futures Commission Merchants

The Commodity Futures Trading Commission (CFTC) has approved for publication in the Federal Register an advance notice of proposed rulemaking seeking public comment on possible changes to its regulations regarding the investment of customer funds segregated pursuant to Section 4d of the Commodity Exchange Act and funds held in an account subject to Regulation 30.7.

Regulation 1.25 provides that a derivatives clearing organization or a futures commission merchant holding customer segregated funds mayinvest those funds in certain permitted investments subject to specified requirements that are designed to minimize exposure to credit, liquidity, and market risks. The CFTC is considering proposing amendments that would revise the scope and character of these permitted investments.

Additionally, in conjunction with its consideration of possible amendments to Regulation 1.25, the CFTC is considering applying the investment requirements of Regulation 1.25, including any prospective amendments, to investments of funds held in accounts subject to Regulation 30.7 (accounts for foreign futures and options).

The CFTC seeks public comment on this action before issuing any proposed rule amendments. The comment file will remain open for 60 days following publication in the Federal Register. Copies of comments may be obtained by contacting the CFTC’s Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581, 202-418-5100 or by accessing the CFTC’s website, www.cftc.gov. Interested parties may submit their comments electronically at secretary@cftc.gov. All comments received will be promptly posted on the CFTC’s website.

Regulatory Agency Proposes Leverage Limit

FINRA Member firms which engage in off-exchange forex transactions with retail customers may face leverage limits if a new FINRA proposed rule is adopted. The new rule would limit the leverage which a member firm could provide to a retail forex investor (i.e. an investor who is not an eligible contract participant) to 1.5 to 1. Many forex dealers currently provide leverage of 100 to 1 or more. FINRA cites the volatility of the forex markets and investor protection as reasons for the very low leverage limits. FINRA will beaccepting comments on this proposal until February 20, 2009.

Forex Hedge Fund Information and Resources

Many forex professionals have experienced a great deal of success trading and investing in the forex markets. These professionals, however, often aren’t sure where they should go for great information on forming a forex hedge fund. They have compiled the resources below for forex managers.

How to Start a Forex Hedge Fund

Once a forex manager is committed to start a forex hedge fund, he will need to retain an attorney who is familiar with both the securities laws involved in forming hedge funds as well as the forex laws which the manager must be aware of. Both ofthese sets of laws are important for the forex manager to observe.

Which Forex Dealer Member should the manager choose?

In general the forex manager should go with the forex dealer member (formerly known only as a futures commission merchant) who provides the best pip spreads. Some forex dealer members will also have a pip rebate program, but these are not very prevalent and many forex dealer members do not have these types of programs. Please contact to discuss your choice of forex dealer member. Many times they can provide managers with better spreads through network.

Most Important Part of the Process

The process of forming a forex hedge fund canbe long, especially if there is registration issues involved. The manager should consider the following:

1. Do you have investors who are ready t o in vest?
2. Do you have office space and the proper equipment to trade?
3. Do you need support staff to support the fund and interact with investors?
4. Do you have forex risk management procedures?
5. Do you have a competent forex attorney?
6. Do you have a good forex dealer memb er who provides you with great rates?

There are other questions which can be considered as well.Their attorneys can help you think through all of the items necessary to establish a successful forex hedge fund. Please contact for a free forex consultation. Typically the consultation will last for half an hour or less and they will provide you with an overview of the process and a list of next steps.