Update: CFTC confirmed this to FXCM, hence the decision.

Following the pretty much unclear situation concerning US overseas accounts with the CFTC new rules FXCM has decided to mandatory shift all US account from its foreign subsidiaries back to the US. I’m sure all US brokers will follow this shortly but for some it’s going to be a financial disaster as they only opened subsidiaries in the UK to avoid NFA rules, and now they need to transfer all accounts back.

Join the iFX EXPO Asia and discover your gateway to the Asian Markets

However, it’s a very good day for offshore brokers, no doubt. I’m sure many US clients will refuse this transfer back to the US because there are reasons why they opened accounts overseas in the first place: there are no FIFO and low leverage rules there. In this case, some clients will just open new accounts with non-US based brokers and others will simply stop trading forex.

Jason Rogers, FXCM’s ambassador to the online portals and forums, just wrote the following at forexfactory:

“We have received clarification:

When will accounts for US residents be repatriated back to the United States?

All forex accounts for US residents trading overseas will be repatriated back to the US by October 18, 2010.

For US residents with FXCM UK, the switch back to FXCM US will most likely occur the weekend of October 15. The switch will occur over the weekend so that there is no disruption to your trading. The existing username and password you use to login to your account will also remain the same. US residents will receive information very early next week by email confirming the timeline.

What happens to non-US entities accepting US residents after October 18?

I’m sure there will be lots of different versions of what the regulations mean and the question has been asked by traders concerning what authority does the US government have restricting US residents from trading overseas. I can’t discuss the legal merits of these questions and I’m sure some traders may test this in the courts; however, considering the reach of US law and disputes, we are not about to illegally accept US residents in violation of CFTC rules going into effect October 18th. We are going by what the CFTC has outlined and clarified as the rules for operating as a forex broker and accepting US residents, and we will be in compliance with US law and regulations.

There are countless examples of the US government going after offshore entities whether it be for offshore gambling operations or the impact of the US government laws affecting Swiss banking. And for another example, British Columbia Securities Commission already restricts foreign entities not registered with the BCSC from soliciting and accepting BC residents (which they enforce). Plus why do you think UK brokers won’t allow US residents to trade CFD contracts even though they don’t have a presence in the US? If other brokers want to take the risk of allowing US residents to trade through offshore entities after October 18th then that’s a risk they’re willing to take despite possible legal action and speaks to their own business practices.

For non-US residents…FXCM is an international company regulated in 6 jurisdictions with offices in New York, London, Hong Kong, Paris, Berlin, Sydney, and Dubai and affiliates in Athens, Milan, Instanbul, Santiago, and Tel-Aviv. Non-US residents can continue to open through FXCM UK or any other regional entity as local regulations permit.

I understand you may have feelings strongly against the CFTC rules and you are entitled to that. Personally as a trader myself, I won’t argue that some of the rules are inconvenient, but as of October 18th the rules are the rules. No matter what my opinion may be, the Dodd-Frank Bill has been passed by Congress and the CTFC rules have been released. As mentioned previously, some traders may test this in the courts as many bills are, but operating illegally is not an option in the meantime. We are happy that 10:1 leverage was not put into place, and your comments went a long way towards making a difference.”