Regulation in the FOREX Market
In 2010 I wrote:
The retail FOREX regulatory picture continues to evolve -- slowly. Three years ago some broker-dealers proudly advertised they were not NFA members. Curiously, one of those was REFCO, which failed soon thereafter. Today, all of the major broker-dealers have joined the NFA (National Futures Association) and come under the watchful government eye of the CFTC (Commodity Futures Trading Commission). My first advice to you: Do not trade with an unregistered broker-dealer. Every broker-dealer should have his NFA registration number on the web site's home page.
Regulation is seldom proactive; it usually is the result of a crisis. An NFA spokesman confessed to me that their hands were somewhat tied until a crisis provoked additional legislation. The NFA does host a booth at most FOREX trade shows. If you attend one of these, you might want to ask questions or voice your concerns to the people staffing them. They seem to be good listeners and keep close tabs on the pulse of the FOREX marketplace.
Broker-dealers register as Futures Commission Merchants (FCMs). Currently, Introducing Brokers (IBs) can be covered by the FCM or register independently. As below, it is likely that IBs will all soon be required to register.
Times have changed! Since 2008, the regulatory agencies in the United States have quickly evolved from a 90-pound weakling to an 800-pound gorilla. The CFTC and NFA have acted quite proactively.
They continue to change in 2012. In 2010, margins and leverage were modified substantially. Maximum leverage for major pairs is now 50:1, down from 100:1, down from 400:1. Spot gold and silver can no longer be traded on FOREX platforms as of July 2011. Financial requirements for FOREX brokers have ballooned and compliance duties greatly expanded. The days of the boutique FOREX shop with personalized service but small capitalization are numbered.
By Michael Duane Archer