Comment Text:
i0-001
COMMENT
CL-06536
From:
Sent:
To:
Subject:
Attach:
James Sanders
Monday, March 8, 2010 12:57 PM
secretary
Regulation of Retail Forex - RIN 3038-AC61
FXCM LLC - CFTC Comment Letter 3-8-2010.pdf
March 8, 2010
Mr. David Stawick
Secretary
Commodity Futures Trading Commission
1155 21st Street, NW.
Washington, DC 20581
Re: Regulation of Retail Forex - R1N 3038-AC61
Dear Mr. Stawick:
Attached please find FXCM LLC's comments with respect to the above-referenced rule proposal.
Sincerely,
James M. Sanders
Chief Compliance Officer
Forex Capital Markets LLC
Financial Square
32 Old Slip, 10th Floor
New York, New York 10005
Telephone: (646) 432-2209
Facsimile: (212) 897-7669
E-mail:
j [email protected]
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the recipient.March 8, 2010
Via U.S. First Class Mail av.d E-mail
Mr, David Stawick
Secretary
Commodity Futures Trading Commission
1155 21
st
Street, N.W.
Washington, D.C. 20581
Re: R_eRutation
of Retail Forex ---RIN3038-AC61
Dear Mr. Stawick:
Forex Capital Markets LLC ('°FXCM") is a registered futm'es commission merchant and Forex
Dealer Member of National Futures Association (°~NFA"). FXCM has been registered with the
Conwnodity Future Trading Commission ("CFTC" or "the Commission') as a futures
commission merchant si~ce 2001 and is one of the leading U.S. firms offering off-exchange
forex trading to retail clients around the world. FXCM is proud of its position as an industry
leader in retail FX both in the United States and gIobalty. FXCM has been a staunch advocate
for increased regulation for the U.S. forex industry and the protection of retail forex customers.
FXCM submits these comments in response to the Commission's January 20, 2010 rulerr~aking
proposal (the "January 20
th
Proposal") concerning "Regulation of Off-Exchange Retail Foreign
Exchange 1transactions and Intermediaries."
FXCM believes that the vast majority of the regulations comained in the January 20
th
Proposal
are sound and consistent w~th the legislative goals for retail forex embodied in the CFTC
Reauthorization Act of 2008. These legislative goals focused first and foremost on clarifying the
CFTC~s j urisdiction over retai! forex; imposing statutory capital requirements for CFTC-
registered retail forex coun~erparties; and requiring retail ~brex intermediaries such as
introducing brokers, trading advisers and pool operators to register with the CFTC and become
members of NFA. Since FXCM has been a longtime proponent for the registration of forex
intermediaries in the U.S. our firm is pleased tl~at the January 20
t~'
Proposal includes provisions
that wil~ fomaal!y implement these Iegislative mandates.
FXCM, t~owever, believes flaat the January 20
t~
Proposal contains one provision that if adopted
as part of the final ruies will have dramatic and negative consequences for U.S.-registered retail
~i~rex dealers as we]l as present and fi~ture U.S. retail forex investors. This provision, ~'Proposed
Regulation 5.9 - Security Deposits for Retail Forex Transactions." would restrict leverage onRe: g_C_gulation
of Retai~ Forex - R1N30_~8-AC61
Mr. David Stawick
March 8, 2010
Page 2 of 3
retail forex transaction to a level of 10:1, which is a 90% reduction from the present leverage
level of 100:1 permitted for major currencies m~der Section 12 of NFA's Financial
Requirements. ~l"he CFTC's proposal to severely reduce leverage would not provide any
toe'-tuning [)I customer protection benefits and would ef[~ct~veiy eliminate the domestic retail
f~rex ind.ustr'v'. If the 1{3: ! leverage level is adopted, U.S.-registered retail forex dealers will be
unable to compete witt~ foreign-based forex deniers, who routinely offer forex trading to
customers at leverage levels ef 200:1 or even higher. Additionally, FXCM betieves that~ if
adopted, the proposed t0:1 leverage timit will have the unintended consequence of increasing tl-~e
potential l-br retail forex fraud in the U.S. as domestically registered firms m'e forced out of
bus~nes~ or move offshore due to their h~ability to effective]y compete for customers in fne
global marketplace. Once domestica!Iy regulated forex ~Srms leave the U.S. marketplace,
unscrupulous crimina! elements ac~ing pu~osef~!ly outside the C~'TC and NFA regulatory
fi'arnework may seek to fill the vacnum. Finally. the consequences of adoption of'the t 0: l
leverage proposal will also include the loss of thousands of jobs in the U.S. forex industry and a
siNaificant loss of U.S. tax. revenue as trading business migrates to t'oreign jurisdictions.
The premise that increasing margin requirements for retail forex customers will provide
additional customer pro~ection is incorrect. Presently, U.S.-regulated forex dealers provide retail
customers with sophisticated web-based trading platforms through whict~ they can individually
adjust - subject, to NFA maximum limits - fine leverage level at which they trade. These trading
platforms operate to automatically liquidate open positions when available margin is exhausted
thereby l~miting a customer's potential loss m the amount placed on deposit. The overwhelming
majority of customers are com/'ortable wi~ the present system under wtaich they can manage and
assume responsibility i~r their individual trading activity and monitor alt open positions,
profit/loss, and available margin in real time in accordance with their personal risk profile.
Under the CFTC's leverage proposal all re.tail customers will have to ptace at least 10 times more
15nds on deposit and at risk of loss in order to meet the minimum mm'gin requirement to open
any trading position. This requirement wilt prectude a large percentage of current U.S. retail
forex customers from maintaining accounts with U.S.-registered counterparties. These
customers with sm.aIler accotmt balances who neve~heless wish to continue participating in the
lbrex market will have no choice but to move their accounts to non-U.S, fi~rex counterparties in
order to continue trading with a relatively modest commitment ot: funds.
FXCM respeett\~lly submits that tl~e CFTC should witt~draw proposed regulation 5.9 and de~er to
current NFA rules on avai]able leverage for CFTC-registered forex counte~ar~ies. As the self-
regulatory organization for U.S. regulated forex dealers since 200!, the NFA has extensive
experience with the domestic forex industD~, which it obtained through regular interaction witt~
forex industry member firms and a robust audit process. Wtaile t~'XCM has no~ always agreed
completely with NFA's rulemaking initiatives concerning tbrex, we believe NFA has
successfu!ly developed and adopted an array of legitimate customer protection rules while
maintaining recognition of factors that would affect its members' ability to compete in the global
marketplace. -['he NFA's present rule setting a maximum of t 00:1 leverage level on major
currencies was only recently proposed by NI~A, appro,,~ed by CFTC and became effective inRe:
R__~ulation
of Retail Forex
....
R~N3038-AC61
Mr. David Stawick
March 8, 2010
Page 3 of 3
November 2009. FXCM believes that NFA's current leverage limits are not inappropriate and ~
maintained will enable '
~
~ ¯ c," ~
Ct 2 C-~e~,~stered forex counterparties to continue competing against non-
U.S. firms.
In conclusion, FXCM believes that the current U.S. regulatory framework for retail forex is
among the strongest in the world and the soon to be implemented re~)~irements regarding
registration for forex intermediaries will only entaance this status. The CFTC, taowever, must
reconsider the current proposat with respect ~.o leverage since the carefu!ly constructed U,S.
regulatory framework for forex wi!l be meaning!ess if customers from the U.S. and abroad
over~vhelmingly choose to open accounts with non-U.S, counterparties because of their ability to
offer more favorable trading cot~ditions.
FXCM appreciates the opportu~it)~ to offer these comments to the Commission on ~e January
20
~
Proposal.
Sincerely,
James Sanders
Chief Compliance Officer
