The Federal Deposit Insurance Corp (FDIC) board members voted 5-0 at a meeting in Washington today to seek comment on the proposal, which would impose requirements for foreign currency futures and options that would be prohibited as of July 16 in the absence of a rule. The FDIC proposal would cover retail transactions involving individuals with $10 million or less to invest. “These are retail customers who don’t meet a sophisticated investor standard,” FDIC Vice Chairman Martin Gruenberg said at the meeting. The measure wouldn’t apply to foreign currency forwards or spot transactions that banks engage in with business customers to hedge foreign exchange risk, according to the FDIC’s notice of proposed rulemaking.
The proposed regulations would also impose requirements on other foreign currency transactions that are functionally or economically similar to futures, options on futures, or options. These similar transactions include so called “rolling spot” transactions that an individual enters into with a foreign currency dealer, usually through the internet or other electronic platform, to transact in foreign currency.
The rules, published for a 30-day comment period, were required by the Dodd-Frank financial overhaul. Similar regulations were issued last September by the Commodity Futures Trading Commission which initially tried to enforce much stricter rules limiting the leverage to as low as 1:10, while eventually after loud public outcry it was limited to ‘only’ 1:25 and 1:50 on minors and majors.
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The rules would provide consumer protections for retail investors engaged in speculative betting who “don’t meet a sophisticated investor standard,” said Martin Gruenberg, the FDIC’s vice chairman. The FDIC proposal mandates that banks require retail investors to post 2% of the transaction’s notional value as margin if they are trading a major currency pair and 5% for more unusual trades – much similar to CFTC’s final rule.
dbFX and CitiFX Pro until recently were the only two ‘retail forex banks’ operating in the US. dbFX has shut down its US retail forex operations less than a month ago quite possible because it understood where the wind was blowing.
It seems that July 2011 is going to be quite an ominous month for the US retail forex industry with dbFX already out and now CitiFX Pro will need to carefully review the situation. This would also mean that many US accounts (the last ones) will go back home as Swiss brokers are going to stop accepting US clients as well. Once again major US forex brokers are only going to profit from this, but I’m not sure this is as good for the traders themselves.