After releasing new regulations to govern retail foreign exchange dealers in September 2010, the US Commodity Future Trading Commission (CFTC) is now beginning to penalize dealers who remain non-compliant.
The new CFTC regulations were implemented as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Food, Conservation, and Energy Act of 2008. Under the new regulations, leverage will now be limited to 50:1 for all major currency pairs and 20:1 for other retail forex transactions. Retail foreign exchange dealers are also required to register with the National Futures Association (NFA), as either a futures commission merchants (FCMs) or retail foreign exchange dealers (RFEDs).
Currently, only 28 forex firms are registered with NFA, and of those 28 only 12 are listed as retail foreign exchange dealers. CFTC strongly encourages US retail forex traders to only work with the 12 registered firms if they manage their own accounts.
Since such a large number of forex firms are either not registered as forex brokers or not registered at all, the CFTC has begun to take action against them. In total, 14 firms have had enforcement actions filed against them by the CFTC. Amongst those 14 include firms such as EuroForex Development LLC, FXOpen Investments Inc., and Wall Street Broker, LLC.
Although 14 firms have actually had action taken against them, the NFA is currently reviewing all of its members to be certain of no foul play. In particular, NFA is looking “for any signs they are designing computer systems to take advantage of what is known in the industry as ‘slippage,’ or small price movement that happen between the time a customer orders a trade and when that trade is actually executed.”
Two firms, IKON FX and Gain Capital, were already convicted of such behaviors and fined a total of $800,000 last year. NFA hopes to continue its investigations to make sure traders are not losing money due to a broker’s foul play, and to gain further industry transparency.