[July 15, 2011] Retail Foreign Exchange Transactions Tweet Jul 15, 2011 (SECURITIES AND EXCHANGE COMMISSION RELEASE/ContentWorks via COMTEX) -- SUMMARY: Under section 742(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), certain foreign exchange transactions with persons who are not "eligible contract participants" (commonly referred to as "retail forex transactions," and as further defined below) with a registered broker or dealer ("broker-dealer") will be prohibited as of July 16, 2011, in the absence of the Commission adopting a rule to allow such transactions under terms and conditions prescribed by the Commission. The Commission is adopting interim final temporary Rule 15b12-1T to allow a registered broker-dealer to engage in a retail forex business until July 16, 2012, provided that the broker-dealer complies with the Securities Exchange Act of 1934 ("Exchange Act"), the rules and regulations thereunder, and the rules of the self-regulatory organization(s) of which the broker-dealer is a member ("SRO rules"), insofar as they are applicable to retail forex transactions. EFFECTIVE DATE: Effective Date: Rule 15b12-1T is effective on July 15, 2011 and will remain in effect until July 16, 2012. Comment Date: Comments on the interim final temporary rule should be received on or before September 13, 2011. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments * Use the Commission's Internet comment form (http://www.sec.gov/rules/interim-final-temp.shtml); or * Send an e-mail to [email protected]. Please include File Number S7-30-11 on the subject line; or * Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments * Send paper comments in triplicate to Elizabeth Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549. All submissions should refer to File Number S7-30-11. This file number should be included on the subject line if e-mail is used. To help the Commission to process and review your comments more efficiently, please use only one method. The Commission will post all comments on its Web site: (http://www.sec.gov/rules/interim-final-temp.shtml). Comments are also available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Jo Anne Swindler, Assistant Director; Richard Vorosmarti, Special Counsel; or Angie Le, Special Counsel, at (202) 551-5777, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is adopting new Rule 15b12-1T under the Exchange Act as an interim final temporary rule. The rule will expire and no longer be effective on July 16, 2012. The Commission is soliciting comments on all aspects of this interim final temporary rule. The Commission will carefully consider any comments received and intends to take further action if it determines that further action is necessary or appropriate, either prior to or following the expiration of the rule. In making this determination, the Commission may consider a number of alternative approaches with respect to retail forex transactions, including proposing new rules for public comment; issuing a final rule amending the interim final temporary rule; issuing a final rule adopting the interim final temporary rule as final; or allowing the interim final temporary rule to expire without further action, which would allow the statutory prohibition to take effect. I. Background On July 21, 2010, President Obama signed into law the Dodd-Frank Act. /1/ As amended by the Dodd-Frank Act, /2/ the Commodity Exchange Act ("CEA") provides that a person for which there is a Federal regulatory agency, /3/ including a broker-dealer registered under section 15(b) (except pursuant to paragraph (11) thereof) or 15C of the Exchange Act, /4/ shall not enter into, or offer to enter into, a transaction described in section 2(c)(2)(B)(i)(I) of the CEA with a person who is not an "eligible contract participant" /5/ except pursuant to a rule or regulation of a Federal regulatory agency allowing the transaction under such terms and conditions as the Federal regulatory agency shall prescribe /6/ ("retail forex rule"). /7/ Transactions described in CEA section 2(c)(2)(B)(i)(I) include "an agreement, contract, or transaction in foreign currency that * * * is a contract of sale of a commodity for future delivery (or an option on such a contract) or an option (other than an option executed or traded on a national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a))." /8/ A Federal regulatory agency's retail forex rule must treat all agreements, contracts, and transactions in foreign currency described in CEA section 2(c)(2)(B)(i)(I) and all agreements, contracts, and transactions in foreign currency that are functionally or economically similar to agreements, contracts, or transactions described in CEA section 2(c)(2)(B)(i)(I), similarly. /9/ Any retail forex rule also must prescribe appropriate requirements with respect to disclosure, recordkeeping, capital and margin, reporting, business conduct, and documentation, and may include such other standards or requirements as the Federal regulatory agency determines to be necessary. /10/ FOOTNOTE 1 Public Law 111-203, 124 Stat. 1376. END FOOTNOTE FOOTNOTE 2 Public Law 111-203, SEC 742(c)(2) (to be codified at 7 U.S.C. 2(c)(2)(E)). END FOOTNOTE FOOTNOTE 3 7 U.S.C. 2(c)(2)(E)(i), as amended by SEC 742(c) of the Dodd-Frank Act, defines a "Federal regulatory agency" to mean the Commodity Futures Trading Commission ("CFTC"), the Securities and Exchange Commission, an appropriate Federal banking agency, the National Credit Union Association, and the Farm Credit Administration. END FOOTNOTE FOOTNOTE 4 7 U.S.C. 2(c)(2)(B)(i)(II). END FOOTNOTE FOOTNOTE 5 "Eligible contract participant" ("ECP") is defined in CEA section 1a(18), as re-designated and amended by section 721 of the Dodd-Frank Act. See Public Law 111-203, SEC 721 (amending CEA section 1a). The CEA's definition of ECP generally is comprised of regulated persons; entities that meet a specified total asset test (e.g., a corporation, partnership, proprietorship, organization, trust, or other entity with total assets exceeding $10 million) or an alternative monetary test coupled with a non-monetary component (e.g., an entity with a net worth in excess of $1 million and engaging in business-related hedging; or certain employee benefit plans, the investment decisions of which are made by one of four enumerated types of regulated entities); and certain governmental entities and individuals that meet defined thresholds. The Commission and the CFTC recently have proposed rules under the CEA that further define "eligible contract participant" with respect to transactions with major swap participants, swap dealers, major security-based swap participants, security-based swap dealers, and commodity pools. See Exchange Act Release No. 63452 (Dec. 7, 2010), 75 FR 80174 (Dec. 21, 2010). Because transactions that are the subject of this release are commonly referred to as "retail forex transactions," this release uses the term "retail customer" to describe persons who are not ECPs. END FOOTNOTE FOOTNOTE 6 7 U.S.C. 2(c)(2)(E)(ii)(I). END FOOTNOTE FOOTNOTE 7 As used in this release, "retail forex rule" refers to any rule proposed or adopted by a Federal regulatory agency pursuant to section 742(c)(2) of the Dodd-Frank Act. END FOOTNOTE FOOTNOTE 8 7 U.S.C. 2(c)(2)(B)(i)(I). END FOOTNOTE FOOTNOTE 9 7 U.S.C. 2(c)(2)(E)(iii)(II). END FOOTNOTE FOOTNOTE 10 7 U.S.C. 2(c)(2)(E)(iii)(I). END FOOTNOTE This amendment to the CEA takes effect on July 16, 2011, which is 360 days from the date of enactment of the Dodd-Frank Act. /11/ After that date, for purposes of CEA section 2(c)(2)(B), broker-dealers for which the Commission is the "Federal regulatory agency" may not engage in off-exchange retail forex futures and options with a customer except pursuant to a retail forex rule issued by the Commission. /12/ This prohibition will not apply to (1) forex transactions with a customer who qualifies as an ECP, or (2) transactions that are spot forex contracts or forward forex contracts irrespective of whether the customer is an ECP. /13/ However, consistent with other Federal regulatory agencies' retail forex rules, Rule 15b12-1T applies to "rolling spot" transactions in foreign currency by broker-dealers. /14/ The discussion of the definition of "retail forex transaction" below addresses the distinctions between rolling spot forex transactions and spot and forward forex contracts. FOOTNOTE 11 See Public Law 111-203, SEC 754. END FOOTNOTE --This is a summary of a Federal Register article originally published on the page number listed below-- Interim final temporary rule; request for comments. CFR Part: "17 CFR Part 240" RIN Number: "RIN 3235-AL19" Citation: "76 FR 41676" Document Number: "Release No. 34-64874; File No. S7-30-11" Federal Register Page Number: "41676" "Rules and Regulations" [ Back To TMCnet.com's Homepage ]