US Regulators Look at Tightening Leverage Ratios for Overseas Customers
- CFTC Chairman Timothy Massad on Wednesday told lawmakers at a House hearing that the regulatory commission is considering how much firms can expose themselves to highly-leveraged trades made by clients outside the US.
US derivatives regulatory body the Commodity Futures Trading Commission is weighing more stringent legislation on retail currency brokers’ overseas affiliates after the Swiss franc fiasco brought FXCM Inc. to its knees in January.
CFTC Chairman Timothy Massad on Wednesday told lawmakers at a House hearing that the regulatory commission is considering how much firms can expose themselves to highly-leveraged trades made by clients outside the US. “We’re looking at our rules,” he said.
Massad explained that a couple of the things the CFTC could do is to restrict firms’ transactions with their foreign affiliates and to require higher standards for assessing risk in overseas arms.
The gap in regulation exists because the maximum leverage permitted in the US is 50-to-1. But brokerages can make trades through foreign affiliates well past that threshold. Taking FXCM as an example, during the Swiss franc meltdown, customers in some countries were trading with as much as 200-to-1 leverage.
Indeed, a person close to the regulators’ review of the brokerage last month confirmed that most of the client losses at FXCM were from overseas currency traders. Amid the Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders , FXCM wasn’t able to close out some client accounts before they lost more than they had on deposit (thanks to the sky-high leverage) leaving the brokerage with the tab.
FXCM is the largest US retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi broker. It lost over $200 million after January 15. A $300 million lifeline from Leucadia National Corp. prevented the company from becoming insolvent.
The CFTC is working with the National Futures Association, an industry-funded front-line regulator, on the potential regulatory changes.
US derivatives regulatory body the Commodity Futures Trading Commission is weighing more stringent legislation on retail currency brokers’ overseas affiliates after the Swiss franc fiasco brought FXCM Inc. to its knees in January.
CFTC Chairman Timothy Massad on Wednesday told lawmakers at a House hearing that the regulatory commission is considering how much firms can expose themselves to highly-leveraged trades made by clients outside the US. “We’re looking at our rules,” he said.
Massad explained that a couple of the things the CFTC could do is to restrict firms’ transactions with their foreign affiliates and to require higher standards for assessing risk in overseas arms.
The gap in regulation exists because the maximum leverage permitted in the US is 50-to-1. But brokerages can make trades through foreign affiliates well past that threshold. Taking FXCM as an example, during the Swiss franc meltdown, customers in some countries were trading with as much as 200-to-1 leverage.
Indeed, a person close to the regulators’ review of the brokerage last month confirmed that most of the client losses at FXCM were from overseas currency traders. Amid the Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders , FXCM wasn’t able to close out some client accounts before they lost more than they had on deposit (thanks to the sky-high leverage) leaving the brokerage with the tab.
FXCM is the largest US retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi broker. It lost over $200 million after January 15. A $300 million lifeline from Leucadia National Corp. prevented the company from becoming insolvent.
The CFTC is working with the National Futures Association, an industry-funded front-line regulator, on the potential regulatory changes.