Forex Registration - Information for Forex Managers and Forex Introducing Brokers

It is without doubt that the off-exchange foreign currency market (known as the forex market or spot forex market) has been one of the most popular markets over the last few years.  There has been an explosion of forex activity as managers have flocked to this strategy.  There are many reasons why managers have decided to trade the forex markets including the following: (1) the forex markets are the most liquid markets in the world; (2) the forex markets trade twenty four hours a day, six days of the week; (3) managers have access to a large amount of leverage (sometimes up to 400:1); and (4) there has been relatively little oversight and regulation of the forex markets at the federal or state levels.  

Background on forex regulations

The popularity of the forex strategy has attracted many frauds hoping to make a quick buck off of unsuspecting investors.  The frequency and audacity of these frauds have caught the eyes of regulators who have been trying to regulate forex managers, even without Congressional authorization.  This power struggle led to a few seminal court decisions which upheld the rights of forex managers to remain unregulated.  After lobbying by the regulatory bodies, Congress acted by including a forex registration requirement to the Farm Bill passed in early 2008. 

The forex registration requirement in the Farm Bill requires the Commodities Futures Trading Commission (CFTC) to promulgate rules that implement the framework for forex registration.  As of early January 2009 the CFTC had not yet promulgated draft versions of the rule.  It is expected that the CFTC will release the draft versions of the rules sometime during the first quarter of 2009.  After the rules have been proposed, there will be a comment period before they would be finalized. 

What the forex registration rules will be?

While we do not yet know what the forex registration rules will look like, we do know a few things.  There is likely to be a regulatory exam requirement.  The National Futures Association (NFA), which is the self regulatory organization which would be in charge of implementing many of the forex registration rules, has stated that the new exam would be called the Series 34 exam.  The NFA has also requested that forex managers be required to pass the Series 3 exam.   The NFA has proposed that new registration categories be implemented.  These categories would include: Forex Commodity Pool Operator (CPO), Forex Commodity Trading Advisor (CTA), Forex Introducing Broker (IB) and Forex Associated Person (AP).

Forex Registration Procedures

The forex registration proceedures are likely to be the same as those currently in place for regular commodity pool operators and commodity trading advisors.  It is likely that forex associated persons will need to take a new regulatory exam which is called the Series 34 exam.  After the associated persons take the exam they will need to retain an attorney or compliance professional to take them through the NFA registration process.

Conclusion

Forex registration is something that the CFTC and the NFA have wanted for a long time.  While registration will be a bit of a hassel for some forex managers, an experienced attorney will be able to held these managers register as quickly as possible.