The Forex and Futures Expo in Las Vegas last week was not particularly well attended but those who were there were keenly interested in learning how the new rules for retail forex would affect their business. One forex broker put it pretty simply, “We’re scared shitless,” he said of some of the new rules.
See in addition to the leverage and capital rules — that most brokers acknowledge are sensible even if they didn’t support them — requirements involving communicating with customers and registration may be more burdensome. The rules and the age of new media are intersecting on a difficult path. Brokers who operate trading forums and educational workshops online will have to monitor them closely and keep records on them up to five years. The National Futures Association (NFA) will need to pre-approve all of this material, which is fine when it is boiler plate instructional material but many of these webinars, podcasts and chat rooms are interactive and don’t follow a simple script.
From the NFA’s perspective this is going to be more difficult and require more staff to monitor all of this communication.
The feeling from many at the show was not so much anger over new regulations but fear of the unexpected. The new rules could have a big impact on the potential profitability of these firms and they may need to make some tough decisions. For their part, the NFA did a good job answering questions at an all day seminar on Saturday, but they could not answer all the questions because the answers are not known yet and much will be a matter of interpretation by regulators and auditors.
One forex broker said he was facing having to cut his staff in half depending on how the rules play out.
We do know that the number of forex dealers has already shrunk considerably due to the new rules. Perhaps some of those firms were undercapitalized and should not have been there, but putting businesses out of business should not be the goal of regulation and it would be a shame if the retail forex sector, one of the most dynamic growth industries of the last decade, is strangled instead of just being contained as was necessary.
