The final rules recently announced by the Commodity Futures Trading Commission (CFTC) regarding retail forex trading will require more trading programs to register as commodity trading advisors (CTAs) and commodity pool operators (CPOs), but won’t force them to trade with U.S. based financial institutions for a year, according to Thomas Sexton, National Futures Association (NFA) senior vice president.
Any individual acting as a forex solicitor, account manager or pool operator must register with the CFTC as an introducing broker (IB), CTA or CPO and become a member of the NFA.
Even current IB, CTA, CPO and AP registrants that are conducting forex business will have to reregister as a forex firm according to the NFA.
Some forex traders have expressed concern regarding the provision in the Act that changes the list of eligible counterparties. The Commodity Reauthorization Act included “financial institutions” in the list of eligible counterparties, and Dodd-Frank changes that to “only U.S. financial institutions.” This would prevent a forex trader from bypassing the new U.S. regulatory regime.
Sexton points out that the change is part of Dodd-Frank and not specific to the new CFTC rules, so it goes into affect one year from passage, not on Oct. 18 when the CFTC rules go into affect.
NFA amends CPO rule
The NFA resubmitted a rule petition to the CFTC in August that would amend regulation 4.5, which provides an exclusion from the definition of CPO for registered investment advisors. The rule change, if enacted, would go back to the more limited exclusion prior to 2003. The current rule allows commodity pool type products to register as mutual funds, face fewer regulations and bypass the CFTC and NFA, even though many of them are managed futures products.
The original petition was broader and the CFTC asked the NFA to narrow the focus to registered investment companies. The CFTC still will have to put the rule out for comment before it could be enacted. Sexton says there are many public commodity pools looking to take advantage of the lighter regulatory structure.
About the Author
Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures magazine in 2001, before the name change to Modern Trader, and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.