Will the CFTC kill the retail Forex business and outsource trading, jobs and liquidity offshore? It is possible and PFGBest is sounding a warning signal. This week PFGBest said that it was in favor of the CFTC's proposed rules regarding Retail Forex Transactions but hopes that leverage will remain the same to avoid unintended negative consequences of job losses to foreign competitors. PFGBest does offer strong support of the CFTC as it has provided clear guidance and a comprehensive scheme of regulatory requirements to govern retail foreign exchange trading in the United States. Once again the CFTC has provided clear regulatory guidance that in the past has made it the premier regulator of the derivatives industry. In particular, the CFTC has fixed the regulatory capital requirement to $20 million plus 5% of liabilities that exceed $10 million, reinforcing its serious intent to protect customer interests.
PFGBEST will provide comments to the proposed rules to assist in making forex regulations similar to other derivative rules that have provided market integrity and customer protection in the futures industry. One key component of the proposed rules that PFGBEST will comment about concerns a likely unintended negative consequence. A leverage structure change in retail forex margining from 100 to 1 to 10 to 1 will force a great majority of forex business to be done offshore and thousands of U.S. jobs would be lost in the derivatives industry to European and other foreign competitors. Worse, U.S. forex customers would not be protected by the CFTC.
PFGBEST feels that U.S. forex customers deserve the best protection available. PFGBest says that it was clearly not the intent of the Congress to destroy the U.S. retail forex industry when the CFTC was given the authority to create rules for retail foreign exchange. Congress made it clear that the industry was to be policed, not abolished. The 100 to 1 leverage structure was changed from 400 to 1 earlier this year when the NFA submitted rules which the CFTC approved. This governance created clear guidance and market protection while keeping the United States competitive with the offshore competitors even though it was a higher requirement. Below is the link to the comment letters to the new proposed CFTC rules regarding retail forex. The comments are mostly from retail FX traders that are angry and frustrated with the CFTC’s new proposed rule to change the leverage from 100 to 1 to 10 to 1. Comment letters are one of the best ways to help our regulators and Congress understand the complexity and consequences to the rules that they are proposing.
For the most part it appears that the mass opinion is very similar to that of PFGBEST. PFGBEST is in full support of the CFTC requiring registration for retail forex dealers and making the rules similar to futures. The only issue with the new rules is that 10 to 1 leverage is too restrictive and 100 to 1 leverage makes sense. PFGBEST agrees with the mass opinions in this aspect.
PFGBEST is concerned that the change in leverage will effectively force all business to be moved outside the U.S. where there is not as much customer protection. If U.S. business goes offshore, there will be loss of jobs in the brokerage industry here. This is not just a forex brokerage business issue. Most futures brokerage firms are surviving now only because they are supplemented by income from the foreign exchange industry. Many trading platform vendors, advertisers, IT developers, trade expo companies and other related industries will be affected by the loss of U.S. derivative brokerage business. This is an important milestone for the derivatives industry. If this leverage change is allowed then there will be even more massive consolidation and downsizing across the industry.