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Most Read Contributor in United States, September 2017
The SEC announced that Securities Exchange Act Rule 15b12-1 will
expire on July 31, 2016, according to its own terms. The SEC
elaborated that broker-dealers, including those that are also
registered dually as futures commission merchants
("FCMs"), will be prohibited under CEA Section 2(c)(2)(E)
from offering or entering into transactions with persons who are
not eligible contract participants, as described in the CEA
("retail forex transactions"). This means that only
CFTC-registered FCMs (that are not dually registered with the SEC
as broker-dealers) or retail foreign exchange dealers
("RFEDs") and certain banks may serve as counterparties
in retail forex transactions.
The rule's expiration should not affect the ability of
retail investors to enter into foreign exchange transactions that
facilitate the settlement of foreign securities transactions into
which they enter with their broker-dealers, since both the SEC and
the CFTC have said on the record that FX contracts entered into for
the purpose of settling transactions in non-U.S. securities are
spot transactions and are not subject to the CEA's
Dodd-Frank's retail forex provisions. See Further
Definition of "Swap," "Security-Based Swap",
and "Security-Based Swap Agreement"; Mixed Swaps;
Security-Based Swap Agreement Recordkeeping, 77 FR 48208,
48257 (August 13, 2012).
Commentary
This turn of events should come as no surprise. The SEC has always seemed reluctant to regulate retail forex. In contrast with its peers in the federal banking community, all of whom adopted detailed, final and comprehensive retail forex rules in July 2011, the SEC waited until the deadline to promulgate an "interim" rule governing the retail forex activities of broker dealers – one that contained no new substantive requirements, but merely incorporated retail forex transactions into the existing SEC and FINRA regimes. That rule had an expiration date of July 2012, which was renewed the next year – again, without substance – with a tight expiration date. The SEC did not adopt a final rule until July 2013, when it adopted one that lacked new substantive requirements yet again, and merely cross-referenced existing rules meant to regulate broker-dealers.
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