Retail Foreign Exchange Transactions
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FDIC Financial Institution Letters › Retail Foreign Exchange Transactions
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DRAFT
05-10-2011
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 349
RIN 3064-AD81
Retail Foreign Exchange Transactions
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
SUMMARY: The FDIC is proposing regulations that would impose requirements for
foreign currency futures, options on futures, and options that an insured depository
institution supervised by the Federal Deposit Insurance Corporation engages in with retail
customers. Pursuant to section 742(c) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, such transactions will be prohibited as of July 16, 2011, in the
absence of the proposed requirements. The proposed regulations would also impose
requirements on other foreign currency transactions that are functionally or economically
similar to futures, options on futures, or options. These similar transactions include so-
called “rolling spot” transactions that an individual enters into with a foreign currency
dealer, usually through the internet or other electronic platform, to transact in foreign
currency. The regulations would not apply to traditional foreign currency forwards or
spot transactions that a depository institution engages in with business customers to
hedge foreign exchange risk.
DATES: Comments must be received by [INSERT DATE 30 DAYS AFTER DATE OF
PUBLICATION IN THE FEDERAL REGISTER].
ADDRESSES: You may submit comments by any of the following methods:
Agency Web Site: http:www.fdic.gov/regulations/laws/federal/propose.html.
Follow instructions for submitting comments on the Agency Web Site.
E-mail: Comments@FDIC.gov. Include “Retail Foreign Exchange Transactions”
in the subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th Street, NW, Washington, D.C. 20429
ite: http:www.fdic.gov/regulations/laws/federal/propose.html.
Follow instructions for submitting comments on the Agency Web Site.
E-mail: Comments@FDIC.gov. Include “Retail Foreign Exchange Transactions”
in the subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th Street, NW, Washington, D.C. 20429.
Hand Delivery/Courier: Guard station at the rear of the 550 17th Street Building
(located on F Street) on business days between 7 a.m. and 5 p.m. (EDT).
Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions
for submitting comments.
Public Inspection: All comments received will be posted without change to
http://www.fdic.gov/regulations/laws/federal including any personal information
provided. Paper copies of public comments may be ordered from the Public
Information Center by telephone at (877) 275-3342 or (703) 562-2200.
FOR FURTHER INFORMATION CONTACT:
Nancy W. Hunt, Associate Director, (202) 898-6643, Bobby R. Bean, Chief, Policy
Section, (202) 898-6705, John Feid, Senior Capital Markets Specialist, (202) 898-8649,
Division of Risk Management Supervision, David N. Wall, Assistant General Counsel,
(703) 562-2440, Thomas Hearn, Counsel, (202) 898-6967, Diane Nguyen, Counsel, (703)
562-6102, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I.
Background
2) 898-6705, John Feid, Senior Capital Markets Specialist, (202) 898-8649,
Division of Risk Management Supervision, David N. Wall, Assistant General Counsel,
(703) 562-2440, Thomas Hearn, Counsel, (202) 898-6967, Diane Nguyen, Counsel, (703)
562-6102, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I.
Background
DRAFT
05-10-2011
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).1 As amended by the
Dodd-Frank Act,2 the Commodity Exchange Act (CEA) provides that a United States
financial institution3 for which there is a Federal regulatory agency4 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
retail customer5 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 prescribe6 (a “retail forex rule”). Section 2(c)(2)(B)(i)(I) includes “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)).”7 A Federal
regulatory agency’s retail forex rule must treat all such futures and options and all
agreements, contracts, or transactions that are functionally or economically similar to
such futures and options, similarly.8
This Dodd-Frank Act amendment to the CEA takes effect 360 days from the
enactment of the Act.9 After that date an institution for which the FDIC is the
“appropriate Federal banking agency” pursuant to § 3(q) of the Federal Deposit Insurance
Act, 12 U.S.C
ions and all
agreements, contracts, or transactions that are functionally or economically similar to
such futures and options, similarly.8
This Dodd-Frank Act amendment to the CEA takes effect 360 days from the
enactment of the Act.9 After that date an institution for which the FDIC is the
“appropriate Federal banking agency” pursuant to § 3(q) of the Federal Deposit Insurance
Act, 12 U.S.C. § 1813(q) (FDIC-supervised IDI) may not engage in off-exchange foreign
currency futures and options with a customer who does not qualify as an eligible contract
participant (ECP) under the CEA (ECP) except pursuant to a retail forex rule issued by
the FDIC.10 The restrictions in the Proposed Rule do not apply to (1) transactions with a
customer who qualifies as an ECP, or (2) transactions that are spot contracts or forward
contracts irrespective of whether the customer is or is not an ECP. The retail forex rule
does, however, apply to “rolling spot” transactions in foreign currency. The discussion of
1
Pub. L. 111-203, 124 Stat. 1376.
2
Dodd-Frank Act § 742(c)(2) (to be codified at 7 U.S.C. § 2(c)(2)(E)). In this preamble, citations to
the retail forex statutory provisions will be to the section where the provisions will be codified in the CEA.
3
The CEA defines “financial institution” as including “a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)).” 7 U.S.C. § 1a(21)(E).
4
Section 2(c)(2)(E)(i)(III) of the CEA, as amended by § 742(c), defines a “Federal regulatory
agency” to mean the CFTC, the Securities and Exchange Commission, an appropriate Federal banking
agency, the National Credit Union Association, and the Farm Credit Administration. Section 1a(2) of the
CEA defines an “appropriate Federal banking agency” by incorporation of § 3 of the Federal Deposit
Insurance Act (12 U.S.C. § 1813(q))
CEA, as amended by § 742(c), defines a “Federal regulatory
agency” to mean the CFTC, the Securities and Exchange Commission, an appropriate Federal banking
agency, the National Credit Union Association, and the Farm Credit Administration. Section 1a(2) of the
CEA defines an “appropriate Federal banking agency” by incorporation of § 3 of the Federal Deposit
Insurance Act (12 U.S.C. § 1813(q)).
When the proposed rule is published in the Federal Register, the FDIC is the appropriate Federal
banking agency for any State nonmember insured bank and any foreign bank having an insured branch. 12
U.S.C. § 1813(q)(3). When the powers of the Office of Thrift Supervision are transferred to the Office of
Comptroller of the Currency, the FDIC and the Board of Governors of the Federal Reserve System, the
FDIC will be the appropriate Federal banking agency for any State nonmember insured bank, any foreign
bank having an insured branch and any State savings association. See Dodd-Frank Act § 312(c) (amending
12 U.S.C. § 1813(q) to redefine “appropriate Federal banking agency”).
5
A retail customer is a person who is not an “eligible contract participant” under the CEA.
6
7 U.S.C. 2(c)(2)(E)(ii)(I).
7
7 U.S.C. 2(c)(2)B(i)(II).
8
7 U.S.C. 2(c)(2)(E)(iii)(II).
9
See Dodd-Frank Act 754.
10
Under 12 U.S.C. 1813(q), the FDIC is the “appropriate Federal banking agency” for a foreign
bank having an insured branch.
2
ppropriate Federal banking agency”).
5
A retail customer is a person who is not an “eligible contract participant” under the CEA.
6
7 U.S.C. 2(c)(2)(E)(ii)(I).
7
7 U.S.C. 2(c)(2)B(i)(II).
8
7 U.S.C. 2(c)(2)(E)(iii)(II).
9
See Dodd-Frank Act 754.
10
Under 12 U.S.C. 1813(q), the FDIC is the “appropriate Federal banking agency” for a foreign
bank having an insured branch.
2
DRAFT
05-10-2011
the definition of “retail forex transaction” below elaborates on the distinctions between
rolling spot transactions and spot and forward contracts.
Any retail forex rule must prescribe appropriate requirements with respect to
disclosure, recordkeeping, capital and margin, reporting, business conduct, and
documentation requirements, and may include such other standards or requirements as
the Federal regulatory agency determines to be necessary.11
On September 10, 2010, the Commodity Futures Trading Commission (CFTC)
adopted a retail forex rule for persons subject to its jurisdiction.12 After studying and
considering the CFTC’s retail forex rule, and being mindful of the desirability of issuing
comparable rules, the FDIC is proposing to adopt a substantially similar rule for FDIC-
supervised IDIs wishing to engage in retail forex transactions. The Dodd-Frank Act does
not require that retail forex rules be issued jointly, or on a coordinated basis, with any
other Federal regulatory agency. While each Federal banking agency is issuing a
separate proposed rule, the Federal banking agencies are coordinating their efforts
osing to adopt a substantially similar rule for FDIC-
supervised IDIs wishing to engage in retail forex transactions. The Dodd-Frank Act does
not require that retail forex rules be issued jointly, or on a coordinated basis, with any
other Federal regulatory agency. While each Federal banking agency is issuing a
separate proposed rule, the Federal banking agencies are coordinating their efforts. The
FDIC’s notice of proposed rulemaking is substantially similar to the OCC’s notice of
proposed rulemaking regarding retail foreign currency transactions published on April
22, 2011.13
The requirements in this proposed rule may overlap with applicable expectations
contained in the Interagency Statement on Retail Sales of Nondeposit Investment
Products (NDIP Policy Statement).14 The NDIP Policy Statement describes the FDIC’s
expectations for an FDIC-supervised IDI that engages in the sale of nondeposit
investment products to retail customers. The NDIP Policy Statement addresses issues
such as disclosure, suitability, sales practices, compensation, and compliance. The FDIC
preliminarily views retail forex transactions as nondeposit investment products, but the
terms “retail forex customer” in this proposed rule and “retail customer” in the NDIP
Policy Statement are not necessarily co-extensive. After the effective date of the final
version of this proposed rule, the FDIC will expect FDIC-supervised IDIs engaging in or
offering retail forex transactions to also comply with the NDIP Policy Statement to the
extent such compliance does not conflict with the requirements of the FDIC’s final retail
forex rule.
Question I.1: Does the proposed rule create issues concerning application of the
NDIP Policy Statement to retail forex transactions that the FDIC should address in this
rule or through updates to the NDIP Policy Statement? Does the Agencies’ proposed
method for developing retail forex rules create material confusion for the marketplace?
II
requirements of the FDIC’s final retail
forex rule.
Question I.1: Does the proposed rule create issues concerning application of the
NDIP Policy Statement to retail forex transactions that the FDIC should address in this
rule or through updates to the NDIP Policy Statement? Does the Agencies’ proposed
method for developing retail forex rules create material confusion for the marketplace?
II.
Section-by-Section Description of the Rule
Structure and Approach
The FDIC’s proposed retail forex rule is designed to promote consistent treatment
of retail forex transactions regardless of whether a retail forex customer’s dealer is an
FDIC-supervised IDI or a CFTC registrant. While the FDIC’s proposed rule is modeled
on the CFTC’s retail forex rule, the FDIC has adapted the CFTC’s rule to reflect
11
7 U.S.C. 2(c)(2)(E)(iii)(I).
12
Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries, 75 FR
55409 (Sept. 10, 2010) (Final CFTC Retail Forex Rule). The CFTC proposed these rules prior to the
enactment of the Dodd-Frank Act. Regulation of Off-Exchange Retail Foreign Exchange Transactions and
Intermediaries, 75 FR 3281 (Jan. 20, 2010) (Proposed CFTC Retail Forex Rule).
13 See Retail Foreign Exchange Transactions, 76 FR 22633 (Apr. 22, 2011).
14
FDIC FIL-61-95 (Sept. 13, 1995).
3
DRAFT
05-10-2011
differences between FDIC and CFTC supervisory regimes and differences between
FDIC-supervised IDIs and CFTC registrants. For example:
The FDIC’s proposed retail forex rule does not include registration requirements,
because FDIC-supervised IDIs are already subject to comprehensive supervision
by the FDIC. Instead of a registration requirement, the proposed rule would
require an FDIC-supervised IDI to obtain the FDIC’s consent prior to conducting
a retail forex business
IC-supervised IDIs and CFTC registrants. For example:
The FDIC’s proposed retail forex rule does not include registration requirements,
because FDIC-supervised IDIs are already subject to comprehensive supervision
by the FDIC. Instead of a registration requirement, the proposed rule would
require an FDIC-supervised IDI to obtain the FDIC’s consent prior to conducting
a retail forex business.
Because FDIC-supervised IDIs are already subject to various capital and other
supervisory requirements,15 proposed § 349.8 would require institutions wishing
to engage in retail forex transactions to be “well capitalized.”
Proposed § 349.6 would require that the risk disclosure statement highlight that a
retail forex transaction is not insured by the FDIC. The CFTC’s regulations do
not address FDIC insurance because financial intermediaries under the CFTC’s
jurisdiction are not insured depository institutions.
Proposed § 349.9 would prohibit cross-collateralization or set-off against a retail
customer’s other property or accounts held at the financial institution. This is
consistent with the heightened customer protection provided to banking
customers.
Proposed Rule 349.1—Authority, Purpose, and Scope
This section would provide that an FDIC-supervised IDI that engages in covered
retail forex transactions with retail customers would be subject to requirements contained
in part 349.
The FDIC notes that some FDIC-supervised IDIs may wish to engage in retail
forex transactions through a foreign branch. The CEA does not clearly define whether
foreign branches of FDIC-supervised IDIs may be considered United States financial
institutions that can be included in the rule.16
Question II.1.1: Should foreign branches of FDIC-supervised IDIs that wish to
conduct retail forex transactions abroad, whether with U.S
sed IDIs may wish to engage in retail
forex transactions through a foreign branch. The CEA does not clearly define whether
foreign branches of FDIC-supervised IDIs may be considered United States financial
institutions that can be included in the rule.16
Question II.1.1: Should foreign branches of FDIC-supervised IDIs that wish to
conduct retail forex transactions abroad, whether with U.S. or foreign customers, be
permitted to engage in the activity?
Proposed Rule 349.2—Definitions
This section proposes definitions of terms specific to retail forex transactions and
to the regulatory requirements that apply to retail forex transactions.
The definition of “retail forex transaction” generally includes the following
transactions in foreign currency between an FDIC-supervised IDI and a person that is not
an ECP:17 (i) a future or option on such a future;18 (ii) options not traded on a registered
national securities exchange;19 and (iii) certain leveraged or margined transactions.20
This definition has several important features.
First, certain transactions in foreign currency are not “retail forex transactions.”
For example, a “spot” forex transaction where one currency is bought for another and the
15
See 12 CFR part 325.
16
See 7 U.S.C. 2(c)(2)(B)(i)(II)(aa).
17
The definition of “eligible contract participant” is found in CEA section 1a(18) and is discussed
below.
18
7 U.S.C. 2(c)(2)(B)(i)(I).
19
7 U.S.C. 2(c)(2)(B)(i)(I).
20
7 U.S.C. 2(c)(2)(C).
4
“retail forex transactions.”
For example, a “spot” forex transaction where one currency is bought for another and the
15
See 12 CFR part 325.
16
See 7 U.S.C. 2(c)(2)(B)(i)(II)(aa).
17
The definition of “eligible contract participant” is found in CEA section 1a(18) and is discussed
below.
18
7 U.S.C. 2(c)(2)(B)(i)(I).
19
7 U.S.C. 2(c)(2)(B)(i)(I).
20
7 U.S.C. 2(c)(2)(C).
4
DRAFT
05-10-2011
two currencies are exchanged within two days would not meet the definition of a “retail
forex transaction,” since actual delivery occurs as soon as practicable.21 Similarly, a
“retail forex transaction” does not include a forward contract with a commercial entity
that creates an enforceable obligation to make or take delivery, provided the commercial
counterparty has the ability to make delivery and accept delivery in connection with its
line of business.22 In addition, the definition does not include transactions executed on an
exchange or designated contract market; those transactions are subject to CFTC
regulation.
Second, rolling spot forex transactions (so-called Zelener23 contracts), including
without limitation such transactions traded on the Internet, through a mobile phone, or on
an electronic platform, could fall within the definition’s third category. This notice of
proposed rulemaking proposes that rolling spot transactions with retail customers (non-
ECPs) should be regulated as retail forex transactions.24 A rolling spot forex transaction
nominally requires delivery of currency within two days, like spot transactions
on the Internet, through a mobile phone, or on
an electronic platform, could fall within the definition’s third category. This notice of
proposed rulemaking proposes that rolling spot transactions with retail customers (non-
ECPs) should be regulated as retail forex transactions.24 A rolling spot forex transaction
nominally requires delivery of currency within two days, like spot transactions. However,
in practice, the contracts are indefinitely renewed every other day and no currency is
actually delivered until one party affirmatively closes out the position.25 Therefore, the
the FDIC believes that these contracts are better viewed as economically more like
futures than spot contracts, although some courts have held them to be spot contracts in
form.26
This section would also define several terms by reference to the CEA, the most
important of which is “eligible contract participant.” Foreign currency transactions with
ECPs are not considered retail forex transactions and are therefore not subject to this rule.
21
See generally CFTC v. Int’l Fin. Servs. (New York), Inc., 323 F. Supp. 2d 482, 495 (S.D.N.Y.
2004) (distinguishing between foreign exchange futures contracts and spot contracts in foreign exchange,
and noting that foreign currency trades settled within two days are ordinarily spot transactions rather than
futures contracts); see also Bank Brussels Lambert v. Intermetals Corp., 779 F. Supp. 741, 748 (S.D.N.Y.
1991).
22
See generally CFTC v. Int’l Fin. Servs. (New York), Inc., 323 F. Supp. 2d 482, 495 (S.D.N.Y.
2004) (distinguishing between forward contracts in foreign exchange and foreign exchange futures
contracts); see also William L. Stein, The Exchange-Trading Requirement of the Commodity Exchange
Act, 41 Vand. L.Rev. 473, 491 (1988)
ert v. Intermetals Corp., 779 F. Supp. 741, 748 (S.D.N.Y.
1991).
22
See generally CFTC v. Int’l Fin. Servs. (New York), Inc., 323 F. Supp. 2d 482, 495 (S.D.N.Y.
2004) (distinguishing between forward contracts in foreign exchange and foreign exchange futures
contracts); see also William L. Stein, The Exchange-Trading Requirement of the Commodity Exchange
Act, 41 Vand. L.Rev. 473, 491 (1988). In contrast to forward contracts, futures contracts generally include
several or all of the following characteristics: (i) standardized nonnegotiable terms (other than price and
quantity); (ii) parties are required to deposit initial margin to secure their obligations under the contract;
(iii) parties are obligated and entitled to pay or receive variation margin in the amount of gain or loss on the
position periodically over the period the contract is outstanding; (iv) purchasers and sellers are permitted to
close out their positions by selling or purchasing offsetting contracts; and (v) settlement may be provided
for by either (a) cash payment through a clearing entity that acts as the counterparty to both sides of the
contract without delivery of the underlying commodity; or (b) physical delivery of the underlying
commodity. See Edward F. Greene et al., U.S. Regulation of International Securities and Derivatives
Markets § 14.08[2] (8th ed. 2006).
23
CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004); see also CFTC v. Erskine, 512 F.3d 309 (6th Cir.
2008).
24
7 U.S.C. 2(c)(2)(E)(iii) (requiring that retail forex rules treat all functionally or economically
similar transactions similarly); see 17 CFR 5.1(m) (defining “retail forex transaction” for CFTC-registered
retail forex dealers).
25
For example, in Zelener, the retail forex dealer retained the right, at the date of delivery of the
currency to deliver the currency, roll the transaction over, or offset all or a portion of the transaction with
another open position held by the customer. See CFTC v. Zelener, 373 F.3d 861, 868 (7th Cir. 2004)
(defining “retail forex transaction” for CFTC-registered
retail forex dealers).
25
For example, in Zelener, the retail forex dealer retained the right, at the date of delivery of the
currency to deliver the currency, roll the transaction over, or offset all or a portion of the transaction with
another open position held by the customer. See CFTC v. Zelener, 373 F.3d 861, 868 (7th Cir. 2004).
26
See, e.g., CFTC v. Erskine, 512 F.3d 309, 326 (6th Cir. 2008); CFTC v. Zelener, 373 F.3d 861,
869 (7th Cir. 2004).
5
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In addition to a variety of financial entities, certain governmental entities, businesses, and
individuals may be ECPs.27
Question II.2.1: What types of customers engage in retail forex transactions,
including rolling spot transactions? Should regulations governing retail forex
transactions cover additional categories of retail customers, that is, those customers that
are ECPs? If so, which eligible contract participants should be considered retail forex
customers?
Proposed Rule 349.3—Prohibited Transactions
This section would prohibit an FDIC-supervised IDI and its institution-affiliated
parties from engaging in fraudulent conduct in connection with retail forex transactions.
This section would also prohibit an FDIC-supervised IDI from acting as a counterparty to
a retail forex transaction if the institution or its affiliate exercises discretion over the
customer’s retail forex account because the FDIC views such self-dealing as
inappropriate
DI and its institution-affiliated
parties from engaging in fraudulent conduct in connection with retail forex transactions.
This section would also prohibit an FDIC-supervised IDI from acting as a counterparty to
a retail forex transaction if the institution or its affiliate exercises discretion over the
customer’s retail forex account because the FDIC views such self-dealing as
inappropriate.
Proposed Rule 349.4—Filing Procedures
The proposed rule would require that, before engaging in a retail forex business,
as defined in proposed § 349.2, an FDIC-supervised IDI shall provide prior written
notice and obtain the FDIC’s prior written consent Under the proposed rule, the notice
would be filed with the appropriate FDIC office and would include: (1) a brief
description of the FDIC-supervised IDI’s proposed retail forex business and the manner
in which it will be conducted; (2) the amount of the institution's existing or proposed
direct or indirect investment in the retail forex business as well as calculations sufficient
to indicate compliance with all capital requirements in proposed § 349.8, discussed
below, and all other applicable capital standards; (3) a copy of the institution’s
comprehensive business plan that includes a discussion of, among other things, conflict
27
The term “eligible contract participant” is defined at 7 U.S.C. 1a(18), and for purposes most
relevant to this proposed rule generally includes:
(a) a corporation, partnership, proprietorship, organization, trust, or other entity—
(1) that has total assets exceeding $10,000,000;
(2) the obligations of which under an agreement, contract, or transaction are guaranteed or
otherwise supported by a letter of credit or keepwell, support, or other agreement by certain other eligible
contract participants; or
(3) that—
rally includes:
(a) a corporation, partnership, proprietorship, organization, trust, or other entity—
(1) that has total assets exceeding $10,000,000;
(2) the obligations of which under an agreement, contract, or transaction are guaranteed or
otherwise supported by a letter of credit or keepwell, support, or other agreement by certain other eligible
contract participants; or
(3) that—
(i) has a net worth exceeding $1,000,000; and
(ii) enters into an agreement, contract, or transaction in connection with the conduct of
the entity’s business or to manage the risk associated with an asset or liability owned or incurred or
reasonably likely to be owned or incurred by the entity in the conduct of the entity’s business;
(b) subject to certain exclusions,
(1) a governmental entity (including the United States, a State, or a foreign government) or
political subdivision of a governmental entity;
(2) a multinational or supranational governmental entity; or
(3) an instrumentality, agency or department of an entity described in (b)(1) or (2); and
(c) an individual who has amounts invested on a discretionary basis, the aggregate of which is in excess
of—
(1) $10,000,000; or
(2) $5,000,000 and who enters into the agreement, contract, or transaction in order to manage the
risk associated with an asset owned or liability incurred, or reasonably likely to be owned or incurred, by
the individual.
6
ty described in (b)(1) or (2); and
(c) an individual who has amounts invested on a discretionary basis, the aggregate of which is in excess
of—
(1) $10,000,000; or
(2) $5,000,000 and who enters into the agreement, contract, or transaction in order to manage the
risk associated with an asset owned or liability incurred, or reasonably likely to be owned or incurred, by
the individual.
6
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of interest and how the operation of the retail forex business is consistent with the
institution’s overall strategy; (4) a description of the institution’s target customers for its
proposed retail forex business and related information, including without limitation credit
evaluations, customer appropriateness, and “know your customer” documentation; (5) a
resolution by the institution’s board of directors that the proposed retail forex business is
an appropriate activity for the institution and that the institution’s written policies,
procedures, and risk measurement and management systems and controls address
conducting retail forex business in a safe and sound manner and in compliance with this
part; and (6) sample disclosures sufficient to demonstrate compliance with proposed §
349.6, discussed below.
The FDIC may request additional information, as necessary.
Question: The FDIC invites comment on whether additional specific information
should be required in the notice.
For FDIC-supervised IDIs that have an existing retail forex business, the proposed
rule would allow the entity to continue to operate the business for up to six months if it
provides the written notice and requests the FDIC’s written consent within 30 days of the
effective date of this rule
The FDIC invites comment on whether additional specific information
should be required in the notice.
For FDIC-supervised IDIs that have an existing retail forex business, the proposed
rule would allow the entity to continue to operate the business for up to six months if it
provides the written notice and requests the FDIC’s written consent within 30 days of the
effective date of this rule.
Question IV.I.I: With respect to FDIC-supervised IDIs that have an existing retail forex
business, does a 30-day time period provide adequate time to provide notification to the
FDIC?
Proposed Rule 349.5—Application and Closing Out of Offsetting Long and Short
Positions
This section would require an FDIC-supervised IDI to close out offsetting long
and short positions in a retail forex account. The institution would have to offset such
positions regardless of whether the customer has instructed otherwise. The CFTC
concluded that “keeping open long and short positions in a retail forex customer’s
account removes the opportunity for the customer to profit on the transactions, increases
the fees paid by the customer and invites abuse.”28 The FDIC agrees with this concern.
Under the proposed rule, an FDIC-supervised IDI may offset retail forex transactions as
instructed by the retail forex customer or the customer’s agent if the instructions do not
come from the institution.
Proposed Rule 349.6—Disclosure
This section would require an FDIC-supervised IDI to provide retail forex
customers with a risk disclosure statement similar to the one required by the CFTC’s
retail forex rule, but tailored to address certain unique characteristics of retail forex in
FDIC-supervised IDIs. The prescribed risk disclosure statement would describe the risks
associated with retail forex transactions
—Disclosure
This section would require an FDIC-supervised IDI to provide retail forex
customers with a risk disclosure statement similar to the one required by the CFTC’s
retail forex rule, but tailored to address certain unique characteristics of retail forex in
FDIC-supervised IDIs. The prescribed risk disclosure statement would describe the risks
associated with retail forex transactions. The disclosure statement would make clear that
an FDIC-supervised IDI is prohibited from applying customer losses arising out of retail
forex transactions against any property of a customer other than money or property
specifically transferred to the FDIC-supervised IDI as margin for retail forex
28
Proposed CFTC Retail Forex Rule, 75 FR at 3287 n.54.
7
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05-10-2011
transactions; the FDIC-supervised IDI may not use rights of set-off to collect margin
against other assets it may hold for the retail forex customer to cover losses arising out of
retail forex transactions. Under the proposed rule, the risk disclosure must be provided as
a separate document and be signed by the retail forex customer.
In its retail forex rule, the CFTC requires its registrants to disclose to retail
customers the percentage of retail forex accounts that earned a profit, and the percentage
of such accounts that experienced a loss, during each of the most recent four calendar
quarters.29 The CFTC initially explained that “the vast majority of retail customers who
enter these transactions do so solely for speculative purposes, and that relatively few of
these participants trade profitably.”30 In its final rule, the CFTC found this requirement
appropriate to protect retail customers from “inherent conflicts embedded in the
operations of the retail over-the-counter forex industry.”31 The FDIC generally agrees
with the CFTC and this proposed rule requires this disclosure; however, the FDIC invites
comments regarding this approach
atively few of
these participants trade profitably.”30 In its final rule, the CFTC found this requirement
appropriate to protect retail customers from “inherent conflicts embedded in the
operations of the retail over-the-counter forex industry.”31 The FDIC generally agrees
with the CFTC and this proposed rule requires this disclosure; however, the FDIC invites
comments regarding this approach.
Question II.6.1: Would this disclosure provide meaningful information to retail
customers of FDIC- IDIs? Would alternative disclosures more effectively accomplish the
objectives of the disclosure?
Similarly, the CFTC’s retail forex rule requires a disclosure that when a retail
customer loses money trading, the dealer makes money on such trades, in addition to any
fees, commissions, or spreads.32 The proposed rule includes this disclosure requirement.
Question II.6.2: Would this disclosure provide meaningful information to retail
customers of FDIC-supervised IDIs? Would alternative disclosures more effectively
accomplish the objectives of the disclosure?
Question II.6.3: Should FDIC-supervised IDIs be allowed to combine the retail
forex risk disclosure with other disclosures that institutions make to their customers? Or
would combining disclosures diminish the impact of the retail forex disclosure?
Question II.6.4: Should the rule require disclosure of the fees the FDIC-
supervised IDI charges retail forex customers for retail forex transactions? What fees do
FDIC-supervised IDIs currently charge retail forex customers for retail forex
transactions? Are there other costs to retail forex customers of engaging in retail forex
transactions that FDIC-supervised IDIs should disclose? If so, what are these costs?
Proposed Rule 349.7—Recordkeeping
This section would specify which documents and records an FDIC-supervised IDI
engaged in retail forex transactions must retain for examination by the FDIC. This section
would also prescribe document maintenance standards
retail forex customers of engaging in retail forex
transactions that FDIC-supervised IDIs should disclose? If so, what are these costs?
Proposed Rule 349.7—Recordkeeping
This section would specify which documents and records an FDIC-supervised IDI
engaged in retail forex transactions must retain for examination by the FDIC. This section
would also prescribe document maintenance standards.
Proposed Rule 349.8—Capital Requirements
This section would require that an FDIC-supervised IDI that offers or enters into
retail forex transactions must be “well capitalized” as defined in the FDIC’s prompt
corrective action regulation33 or the FDIC-supervised IDI must obtain an exemption from
the FDIC. In addition, under the proposed rule, an FDIC-supervised IDI must continue to
hold capital against retail forex transactions as provided in the FDIC’s capital
29
17 CFR 5.5(e)(1).
30
Proposed CFTC Retail Forex Rule, 75 FR at 3289.
31
Final CFTC Retail Forex Rule, 75 FR at 55412.
32
17 CFR 5.5(b).
33
12 CFR part 325.
8
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05-10-2011
regulation.34 This rule does not amend the FDIC’s prompt corrective action regulation or
capital regulation.
Proposed Rule 349.9—Margin Requirements
Under the proposed rule, paragraph (a) would require an FDIC-supervised IDI
that engages in retail forex transactions, in advance of any such transaction, to collect
from the retail forex customer margin equal to at least 2 percent of the notional value of
the retail forex transaction if the transaction is in a major currency pair, and at least 5
percent of the notional value of the retail forex transaction otherwise. These margin
requirements are identical to the requirements imposed by the CFTC’s retail forex rule. A
major currency pair is a currency pair with two major currencies. The major currencies
currently are the U.S
notional value of
the retail forex transaction if the transaction is in a major currency pair, and at least 5
percent of the notional value of the retail forex transaction otherwise. These margin
requirements are identical to the requirements imposed by the CFTC’s retail forex rule. A
major currency pair is a currency pair with two major currencies. The major currencies
currently are the U.S. Dollar (USD), Canadian Dollar (CAD), Euro (EUR), United
Kingdom Pound (GBP), Japanese Yen (JPY), Swiss franc (CHF), New Zealand Dollar
(NZD), Australian Dollar (AUD), Swedish Kronor (SEK), Danish Kroner (DKK), and
Norwegian Krone (NOK).35 An evolving market could change the major currencies, so
the FDIC is not proposing to define the term “major currency,” but rather expects that
FDIC-supervised IDIs will adhere to standard market interpretations.36
Question II.9.1: The FDIC requests comment on whether it should explicitly
define the major currencies or major currency pairs in the proposed rule and whether
commenters have any other suggestions on how the FDIC should identify a major
currency or major currency pair.
For retail forex transactions involving rolling spots, for example, higher margin
requirements protects the retail forex customer from the risks related to trading with
excessive leverage. The volatility of the foreign currency markets exposes retail forex
customers with high leverage to greater risk of substantial losses. High leverage ratios
can significantly increase a customer’s losses and gains. Even a small move against a
customer’s position can result in a substantial loss. Even with required margin, losses can
exceed the margin posted, and if the account is not closed out, and depending on the
specific circumstances, the customer could be liable for additional losses
o greater risk of substantial losses. High leverage ratios
can significantly increase a customer’s losses and gains. Even a small move against a
customer’s position can result in a substantial loss. Even with required margin, losses can
exceed the margin posted, and if the account is not closed out, and depending on the
specific circumstances, the customer could be liable for additional losses. Given the risks
involved in the trading of retail forex transactions by retail customers using high
leverage, the only funds that should be invested in such transactions are those that the
customer can afford to lose.
Prior to the CFTC’s rule, non-bank dealers routinely permitted customers to trade
with 1 percent margin (leverage of 100:1) and sometimes with as little as 0.25 percent
margin (leverage of 400:1). When the CFTC proposed its retail forex rule in January
2010, it proposed a margin requirement of 10 percent (leverage of 10:1). In response to
comments, the CFTC reduced the required margin in the final rule to 2 percent (leverage
of 50:1) for trades involving major currencies and 5 percent (leverage of 20:1) for trades
involving non-major currencies.
34
12 CFR part 325.
35
See National Futures Association, Forex Transaction: A Regulatory Guide 17 (Feb. 2011); New
York Federal Reserve Bank, Survey of North American Foreign Exchange Volume tbl. 3e (Jan. 2011);
Bank for International Settlements, Report on Global Foreign Exchange Market Activity in 2010 at 15 tbl.
B.6 (Dec. 2010).
36
The Final CFTC Retail Forex Rule similarly does not define “major currency.”
9
ee National Futures Association, Forex Transaction: A Regulatory Guide 17 (Feb. 2011); New
York Federal Reserve Bank, Survey of North American Foreign Exchange Volume tbl. 3e (Jan. 2011);
Bank for International Settlements, Report on Global Foreign Exchange Market Activity in 2010 at 15 tbl.
B.6 (Dec. 2010).
36
The Final CFTC Retail Forex Rule similarly does not define “major currency.”
9
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05-10-2011
Question II.9.2: Will the proposed margin requirements provide adequate
protection for retail customers engaged in this particular type of trade or should the
requirements be adjusted and how?
Under the proposed rule, paragraph (b) would specify the acceptable forms of
margin that customers may post. FDIC-supervised IDIs must establish policies and
procedures providing for haircuts for noncash margin collected from customers and must
review these haircuts annually. It may be prudent for FDIC-supervised IDIs to review and
modify the size of the haircuts more frequently.
Question II.9.3: Should the FDIC provide for haircuts for noncash margin posted
for retail forex transactions? If so, how should those haircuts be determined?
In proposed rule 349.9(c), the FDIC would require an FDIC-supervised IDI to
hold each retail forex customer’s retail forex transaction margin in a separate account that
contains only that customer’s retail forex margin. This paragraph is designed to work
with the prohibition on set-off in paragraph (e), so that an FDIC-supervised IDI may not
have an account agreement that treats all of a retail forex customer’s assets held by a
bank as margin for retail forex transactions.
Paragraph (d) would require an FDIC-supervised IDI to collect additional margin
from the customer or to liquidate the customer’s position if the amount of margin held by
the institution fails to meet the requirements of paragraph (a)
C-supervised IDI may not
have an account agreement that treats all of a retail forex customer’s assets held by a
bank as margin for retail forex transactions.
Paragraph (d) would require an FDIC-supervised IDI to collect additional margin
from the customer or to liquidate the customer’s position if the amount of margin held by
the institution fails to meet the requirements of paragraph (a). The proposed rule would
require the institution to mark the customer’s open retail forex positions and the value of
the customer’s margin to the market daily to ensure that a retail forex customer does not
accumulate substantial losses not covered by margin.
Question II.9.4: How frequently do FDIC-supervised IDIs currently mark retail
forex customers’ open retail forex positions and the value of the customers’ margin to the
market? Should the rule require marking customer positions and margin to the market
daily, or would more frequent marks be more appropriate in light of the speed at which
currency markets move? What is the most frequent mark to market requirement that is
practical in light of the characteristics of the forex markets and the assets that retail forex
customers may pledge as margin for retail forex transaction?
Paragraph (e) would prohibit an FDIC-supervised IDI from applying a retail forex
customer’s losses against any asset or liability of the retail forex customer other than
money or property given as margin. An FDIC-supervised IDI’s relationship with a retail
forex customer may evolve out of a prior relationship of providing financial services or
may evolve into such a relationship. Thus it is more likely that an FDIC-supervised IDI
acting as a retail forex counterparty will hold other assets or liabilities of a retail forex
customer, for example a deposit account or mortgage, than it is for a retail forex dealer
regulated by the CFTC to hold such other assets
er may evolve out of a prior relationship of providing financial services or
may evolve into such a relationship. Thus it is more likely that an FDIC-supervised IDI
acting as a retail forex counterparty will hold other assets or liabilities of a retail forex
customer, for example a deposit account or mortgage, than it is for a retail forex dealer
regulated by the CFTC to hold such other assets. The FDIC believes it would be
inappropriate to allow an FDIC-supervised IDI to leave trades open and allow additional
losses to accrue that can be applied against a retail forex customer’s other assets or
liabilities held by the FDIC-supervised IDI.
Question II.9.5: The FDIC requests comment on whether this section provides
sufficient incentives for FDIC-supervised IDIs to liquidate a retail forex customer’s
losing position within a reasonably short period of time in an effort to minimize such
losses. Do the proposed rules accomplish that objective? Are there more effective
methods of achieving the objective?
Proposed Rule 349.10—Required reporting to customers
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This section would require an FDIC-supervised IDI engaging in retail forex
transactions to provide each retail forex customer a monthly statement and confirmation
statements.
Question II.10.1: Does proposed § 349.10 provide meaningful statements that
would be useful to retail customers, or, in light of the distinctive characteristics of retail
forex transactions, would other information be more appropriate? If so, what information
would be more appropriate?
Proposed Rule 349.11—Unlawful Representations
Under the proposed rule, this section would prohibit an FDIC-supervised IDI and
its institutional-affiliated parties from representing that the Federal government, the
FDIC, or any other Federal agency has sponsored, recommended, or approved retail forex
transactions or products in any way
? If so, what information
would be more appropriate?
Proposed Rule 349.11—Unlawful Representations
Under the proposed rule, this section would prohibit an FDIC-supervised IDI and
its institutional-affiliated parties from representing that the Federal government, the
FDIC, or any other Federal agency has sponsored, recommended, or approved retail forex
transactions or products in any way. This section also would prohibit an FDIC-supervised
IDI from implying or representing that it will guarantee against or limit retail forex
customer losses or not collect margin as required by section 349.9. However, this section
would not prohibit an FDIC-supervised IDI from sharing in a loss resulting from error or
mishandling of an order, and guaranties entered into prior to effectiveness of the
prohibition would only be affected if an attempt is made to extend, modify, or renew
them. Further, this section would not prohibit an FDIC-supervised IDI from hedging or
otherwise mitigating its own exposure to retail forex transactions or any other foreign
exchange risk.
Proposed Rule 349.12—Authorization to Trade
This section would require an FDIC-supervised IDI to have specific written
authorization from a retail forex customer before effecting a retail forex transaction for
that customer.
Proposed Rule 349.13—Trading and Operational Standards
This section largely follows the trading standards of the CFTC’s retail forex rule,
which were developed to prevent some of the deceptive or unfair practices identified by
the CFTC and the National Futures Association
fic written
authorization from a retail forex customer before effecting a retail forex transaction for
that customer.
Proposed Rule 349.13—Trading and Operational Standards
This section largely follows the trading standards of the CFTC’s retail forex rule,
which were developed to prevent some of the deceptive or unfair practices identified by
the CFTC and the National Futures Association.
Under paragraph (a) of the proposed rule, an FDIC-supervised IDI engaged in
retail forex transactions would be required to establish and enforce internal rules,
procedures and controls (1) to prevent front running, in which transactions in accounts of
the FDIC-supervised IDI or its related persons are executed before a similar customer
order; (2) to establish settlement prices fairly and objectively; and (3) to record and
maintain transaction records and make them available to customers.
Paragraph (b) would prohibit an FDIC-supervised IDI engaging in retail forex
transactions from disclosing that it holds another person’s order unless disclosure is
necessary for execution or is made at the FDIC’s request.
As written, paragraph (c) would ensure that institution-affiliated parties of another
retail forex counterparty do not open accounts with an FDIC-supervised IDI without the
knowledge and authorization of the account surveillance personnel of the other retail
forex counterparty to which they are affiliated. Similarly, paragraph (d) would ensure that
institution-affiliated parties of an FDIC-supervised IDI do not open accounts with other
retail forex counterparties without the knowledge and authorization of the account
surveillance personnel of the FDIC-supervised IDI to which they are affiliated.
Paragraph (e) would prohibit an FDIC-supervised IDI engaging in retail forex
transactions from (1) entering a retail forex transaction to be executed at a price that is
11
f an FDIC-supervised IDI do not open accounts with other
retail forex counterparties without the knowledge and authorization of the account
surveillance personnel of the FDIC-supervised IDI to which they are affiliated.
Paragraph (e) would prohibit an FDIC-supervised IDI engaging in retail forex
transactions from (1) entering a retail forex transaction to be executed at a price that is
11
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05-10-2011
not at or near prices at which other retail forex customers have executed materially
similar transactions with the FDIC-supervised IDI during the same time period, (2)
changing prices after confirmation, (3) providing a retail forex customer with a new bid
price that is higher (or lower) than previously provided without providing a new ask price
that is similarly higher (or lower) as well, and (4) establishing a new position for a retail
forex customer (except to offset an existing position) if the FDIC-supervised IDI holds
one or more outstanding orders of other retail forex customers for the same currency pair
at a comparable price.
However, paragraph (e)(3) would not prevent an FDIC-supervised IDI from
changing the bid or ask prices of a retail forex transaction to respond to market events.
The FDIC understands that market practice among CFTC-registrants is not to offer
requotes, but to simply reject orders and advise customers they may submit a new order
(which the dealer may or may not accept). Similarly, an FDIC-supervised IDI could
reject an order and advise customers they may submit a new order.
Question II.13.1: Would this requirement appropriately protect retail forex
customers? If not, how it should be modified? Would it be simpler for the rule to simply
prohibit requoting, because FDIC-supervised IDIs may instead reject an order and accept
new orders from their retail forex customers?
Paragraph (e)(4) would require an FDIC-supervised IDI engaging in retail forex
transactions to execute similar orders in the order they are received
ly protect retail forex
customers? If not, how it should be modified? Would it be simpler for the rule to simply
prohibit requoting, because FDIC-supervised IDIs may instead reject an order and accept
new orders from their retail forex customers?
Paragraph (e)(4) would require an FDIC-supervised IDI engaging in retail forex
transactions to execute similar orders in the order they are received. The prohibition
would prevent an FDIC-supervised IDI from offering preferred execution to some of its
retail forex customers but not others.
Proposed Rule 349.14—Supervision
This section would impose on an FDIC-supervised IDI and its agents, officers,
and employees a duty to supervise subordinates with responsibility for retail forex
transactions to ensure compliance with the FDIC’s retail forex rule.
Question II.14.1: Would this section impose any additional requirements not
already encompassed by safety and soundness standards applicable to FDIC-supervised
IDIs and their agents, officers, and employees?
Proposed Rule 349.15—Notice of Transfers
This section describes the requirements for transferring a retail forex account.
Generally, an FDIC-supervised IDI would be required to provide retail forex customers
30 days’ prior notice before transferring or assigning their account. Affected customers
may then instruct the FDIC-supervised IDI to transfer the account to an institution of
their choosing or liquidate the account. There are three exceptions to the above notice
requirement: a transfer in connection with the receivership or conservatorship under the
Federal Deposit Insurance Act; a transfer pursuant to a retail forex customer’s specific
request; and a transfer otherwise allowed by applicable law. An FDIC-supervised IDI that
is the transferee of retail forex accounts generally would be required to provide the
transferred customers with the risk disclosure statement of proposed § 349.6 and obtain
each affected customer’s written acknowledgement within 60 days
urance Act; a transfer pursuant to a retail forex customer’s specific
request; and a transfer otherwise allowed by applicable law. An FDIC-supervised IDI that
is the transferee of retail forex accounts generally would be required to provide the
transferred customers with the risk disclosure statement of proposed § 349.6 and obtain
each affected customer’s written acknowledgement within 60 days.
Proposed Rule 349.16—Customer Dispute Resolution
This section would prohibit an FDIC-supervised IDI from entering into any
agreement or understanding with a retail forex customer in which the customer agrees,
prior to the time a claim or grievance arises, to submit the claim or grievance to any
settlement procedure.
12
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This provision differs from the applicable CFTC dispute settlement procedures,
which permit pre-dispute settlement procedures under certain conditions.37 The substance
of the CFTC dispute settlement resolution regulation, however, dates back to August 10,
2001. Since that time, concerns about predispute settlement resolution agreements have
emerged. Congress addressed these concerns in seven provisions in the Dodd-Frank Act
that prohibit, or give the agency involved the authority to prohibit, the use of predispute
arbitration provisions.38 Consonant with this demonstrated Congressional concern with
such agreements, the FDIC is proposing, pursuant to its authority to adopt “such other
standards or requirements as [it] shall determine to be necessary,” to prohibit a FDIC-
supervised IDI from entering into a pre-dispute settlement dispute resolution agreement
with a retail forex customer.
III.
Request for Comments
The FDIC requests comment on all aspects of the proposed rule, including the
questions posed in the preamble
g, pursuant to its authority to adopt “such other
standards or requirements as [it] shall determine to be necessary,” to prohibit a FDIC-
supervised IDI from entering into a pre-dispute settlement dispute resolution agreement
with a retail forex customer.
III.
Request for Comments
The FDIC requests comment on all aspects of the proposed rule, including the
questions posed in the preamble. In addition, the FDIC requests comments on the
following questions:
Question III.1: Would the proposed rule appropriately protect retail forex
customers of FDIC-supervised IDIs?
Question III.2: Are the proposed rule’s variations from the CFTC retail forex rule
appropriately tailored to the differences between FDIC-supervised IDIs and
CFTC registrants and the regulatory regimes applicable to each?
Question III.3: Should the proposed rule include further disclosure requirements
with respect to whether or not retail forex transactions or margin for retail forex
transactions are insured by the FDIC?
Question III.4: Should the proposed rule limit the ability of an FDIC-supervised
IDI to enter into speculative retail forex transactions, such as rolling spot
transactions, with only certain retail forex customers? Do FDIC-supervised IDIs
limit customer access to these transactions at this time? How do FDIC-supervised
IDIs determine if these types of trades may be appropriate for those customers?
To assist in the review of comments, the FDIC requests that commenters identify their
comments by question number.
IV.
Regulatory Analysis
37 17 CFR 166.5. The CFTC’s regulation permits predispute dispute settlement agreements with a
customer with certain restrictions such as that signing the agreement must not be made a condition for the
customer to utilize the services offered by the CFTC registrant
ommenters identify their
comments by question number.
IV.
Regulatory Analysis
37 17 CFR 166.5. The CFTC’s regulation permits predispute dispute settlement agreements with a
customer with certain restrictions such as that signing the agreement must not be made a condition for the
customer to utilize the services offered by the CFTC registrant.
38 See Dodd-Frank Act section 748 (amending CEA section 23(n)(2) to provide: “No predispute arbitration
agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this
section.”); section 921(a) (adding similar provisions to section 15(o) to the Securities Exchange Act of
1934 and section 205(f) to the Investment Advisers Act of 1940); section 922(c) (adding a similar
provision to 18 U.S.C. 1514A, which provides employee protections, including a right to a jury trial to
enforce such protections, to employees of publicly registered companies and nationally recognized
statistical rating organizations); section 1028(requiring the Consumer Financial Protection Bureau (CFPB)
to conduct a study and report to Congress on the use of predispute arbitration agreements “between covered
persons and consumers in connection with the offering or providing of consumer financial products or
services” and giving the CFPB authority to adopt regulations prohibiting such agreements; section 1057(d)
(prohibiting predispute arbitration agreements that affect the employee protection rights of a person that is
employed by an entity subject to CFPB regulation; and section 1414 (amending section 129C of the Truth
in Lending Act to prohibit predispute arbitration agreements with respect to residential mortgage loans and
home equity loans).
13
ions prohibiting such agreements; section 1057(d)
(prohibiting predispute arbitration agreements that affect the employee protection rights of a person that is
employed by an entity subject to CFPB regulation; and section 1414 (amending section 129C of the Truth
in Lending Act to prohibit predispute arbitration agreements with respect to residential mortgage loans and
home equity loans).
13
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A.
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA) generally requires an
agency that is issuing a proposed rule to prepare and make available for public comment
an initial regulatory flexibility analysis that describes the impact of the proposed rule on
small entities. The RFA provides that an agency is not required to prepare and publish an
initial regulatory flexibility analysis if the agency certifies that the proposed rule will not,
if promulgated as a final rule, have a significant economic impact on a substantial
number of small entities. Under regulations issued by the Small Business Administration,
a small entity includes an FDIC-supervised IDI with assets of $175 million or less.39 The
proposed rule would impose recordkeeping and disclosure requirements on any FDIC-
supervised IDI, including one that engages in retail forex transactions with their
customers.
Pursuant to section 605(b) of the RFA, the FDIC certifies that this proposed rule
will not have a significant economic impact on a substantial number of the small entities
it supervises. Accordingly, a regulatory flexibility analysis is not required. In making this
determination, the FDIC estimated that there are no small banks currently engaging in
retail forex transactions with their customers. Therefore, the FDIC estimates that no small
banks under its supervision would be affected by the proposed rule
omic impact on a substantial number of the small entities
it supervises. Accordingly, a regulatory flexibility analysis is not required. In making this
determination, the FDIC estimated that there are no small banks currently engaging in
retail forex transactions with their customers. Therefore, the FDIC estimates that no small
banks under its supervision would be affected by the proposed rule.
Persons wishing to submit written comments regarding the FDIC’s certification
under the RFA should refer to the instructions for submitting comments in the front of
this release. Such comments will be considered and placed in the same public file as
comments on the proposal itself.
B.
Paperwork Reduction Act
Request for Comment on Proposed Information Collection
In accordance with section 3512 of the Paperwork Reduction Act (PRA) of 1995
(44 U.S.C. 3501-3521), the FDIC may not conduct or sponsor, and a respondent is not
required to respond to, an information collection unless it displays a currently valid
Office of Management and Budget (OMB) control number. The information collection
requirements contained in this notice of proposed rulemaking have been submitted by the
FDIC to OMB for review and approval under section 3506 of the PRA and § 1320.11 of
OMB’s implementing regulations (5 C.F.R. 1320 et seq.). The information collection
requirements are found in §§ 349.4-349.7, 349.9-349.10, 349.13, 349.15-349.16.
Comments are invited on:
(a) Whether the collection of information is necessary for the proper performance
of the FDIC’s functions, including whether the information has practical utility;
(b) The accuracy of the estimate of the burden of the information collection,
including the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the information to be
collected;
hether the collection of information is necessary for the proper performance
of the FDIC’s functions, including whether the information has practical utility;
(b) The accuracy of the estimate of the burden of the information collection,
including the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the information to be
collected;
(d) Ways to minimize the burden of information collection on respondents,
including through the use of automated collection techniques or other forms of
information technology; and
39
Small Business Administration regulations define “small entities” to include banks with a four-
quarter average of total assets of $175 million or less (13 CFR 121.201).
14
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05-10-2011
(e) Estimates of capital or startup costs and costs of operation, maintenance, and
purchase of services to provide information.
Proposed Information Collection
Title of Information Collection: Retail Foreign Exchange Transactions.
Frequency of Response: On Occasion.
Affected Public: Businesses or other for-profit.
Respondents: State nonmember insured banks and foreign banks having insured
branches.
Filing Requirements
The filing requirements in proposed § 349.4 would require that, prior to initiating
a retail forex business, an FDIC-supervised IDI provide the FDIC with prior notice,
obtain the FDIC’s prior written consent, and submit the documents provided for in
proposed § 349.4(c). The FDIC-supervised IDI must also provide other information
required by the FDIC, such as documentation of customer due diligence. An FDIC-
supervised IDI already engaged in a retail forex business may continue to do so, provided
it request the FDIC’s written consent
FDIC with prior notice,
obtain the FDIC’s prior written consent, and submit the documents provided for in
proposed § 349.4(c). The FDIC-supervised IDI must also provide other information
required by the FDIC, such as documentation of customer due diligence. An FDIC-
supervised IDI already engaged in a retail forex business may continue to do so, provided
it request the FDIC’s written consent.
Disclosure Requirements
Proposed § 349.5, regarding the application and closing out of offsetting long and
short positions, would require an FDIC-supervised IDI to promptly provide the customer
with a statement reflecting the financial result of the transactions and the name of the
introducing broker to the account. The customer would provide specific written
instructions on how the offsetting transaction should be applied.
Proposed § 349.6 would require that an FDIC-supervised IDI furnish a retail forex
customer with a written disclosure before opening an account that will engage in retail
forex transactions for a retail forex customer and receive an acknowledgment from the
customer that it was received and understood. It also requires the disclosure by an FDIC-
supervised IDI of its fees and other charges and its profitable accounts ratio.
Proposed § 349.10 would require an FDIC-supervised IDI to issue monthly
statements to each retail forex customer and to send confirmation statements following
transactions.
Proposed § 349.13(b) would allow disclosure by an FDIC-supervised IDI that an
order of another person is being held by them only when necessary to the effective
execution of the order or when the disclosure is requested by the FDIC
49.10 would require an FDIC-supervised IDI to issue monthly
statements to each retail forex customer and to send confirmation statements following
transactions.
Proposed § 349.13(b) would allow disclosure by an FDIC-supervised IDI that an
order of another person is being held by them only when necessary to the effective
execution of the order or when the disclosure is requested by the FDIC. Proposed rule
349.13(c) would prohibit an FDIC-supervised IDI engaging in retail forex transactions
from knowingly handling the account of any related person of another retail forex
counterparty unless it receives proper written authorization, promptly prepares a written
record of the order, and transmits to the counterparty copies all statements and written
records. Proposed Rule 349.13(d) would prohibit a related person of an FDIC-supervised
IDI engaging in forex transactions from having an account with another retail forex
counterparty unless it receives proper written authorization and copies of all statements
and written records for such accounts are transmitted to the counterparty.
Proposed § 349.15 would require an FDIC-supervised IDI to provide a retail forex
customer with 30 days’ prior notice of any assignment of any position or transfer of any
account of the retail forex customer. It would also require an FDIC-supervised IDI to
which retail forex accounts or positions are assigned or transferred to provide the affected
15
s are transmitted to the counterparty.
Proposed § 349.15 would require an FDIC-supervised IDI to provide a retail forex
customer with 30 days’ prior notice of any assignment of any position or transfer of any
account of the retail forex customer. It would also require an FDIC-supervised IDI to
which retail forex accounts or positions are assigned or transferred to provide the affected
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customers with risk disclosure statements and forms of acknowledgment and receive the
signed acknowledgments within 60 days.
The customer dispute resolution provisions in § 349.16 would require certain
endorsements, acknowledgments, and signature language. It also would require that
within 10 days after receipt of notice from the retail forex customer that they intend to
submit a claim to arbitration, the FDIC-supervised IDI provide them with a list of persons
qualified in the dispute resolution and that the customer must notify the FDIC-supervised
IDI of the person selected within 45 days of receipt of such list.
Policies and Procedures; Recordkeeping
Proposed §§ 349.7 and 349.13 would require that an FDIC-supervised IDI
engaging in retail forex transactions keep full, complete, and systematic records and
establish and implement internal rules, procedures, and controls. Proposed § 349.7 also
would require that an FDIC-supervised IDI keep account, financial ledger, transaction
and daily records, as well as memorandum orders, post-execution allocation of bunched
orders, records regarding its ratio of profitable accounts, possible violations of law,
records for noncash margin, and monthly statements and confirmations. Proposed § 349.9
would require policies and procedures for haircuts for noncash margin collected under the
rule’s margin requirements, and annual evaluations and modifications of the haircuts.
Estimated PRA Burden:
Estimated Number of Respondents: 3 FDIC-supervised IDIs; 1 service provider.
Total Reporting Burden: 48 hours
or noncash margin, and monthly statements and confirmations. Proposed § 349.9
would require policies and procedures for haircuts for noncash margin collected under the
rule’s margin requirements, and annual evaluations and modifications of the haircuts.
Estimated PRA Burden:
Estimated Number of Respondents: 3 FDIC-supervised IDIs; 1 service provider.
Total Reporting Burden: 48 hours.
Total Disclosure Burden: 5,326 hours.
Total Recordkeeping Burden: 664 hours.
Total Annual Burden: 6,038 hours.
C.
Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the FDIC to use plain
language in all proposed and final rules published after January 1, 2000. The FDIC
invites comment on how to make this proposed rule easier to understand. For example,
the FDIC requests comment on such questions as:
Have we organized the material to suit your needs? If not, how could the
material be better organized?
Have we clearly stated the requirements of the rule? If not, how could the rule
be more clearly stated?
Does the rule contain technical language or jargon that is not clear? If so,
which language requires clarification?
Would a different format (grouping and order of sections, use of headings,
paragraphing) make the regulation easier to understand? If so, what changes
would make the regulation easier to understand?
What else could we do to make the regulation easier to understand?
List of Subjects in 12 CFR part 349
Consumer protection, Definitions, Foreign currencies, Foreign exchange, State
nonmember insured bank, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the FDIC proposes to add part 349 to Title
12, Chapter III of the Code of Federal Regulations to read as follows:
PART 349—RETAIL FOREIGN EXCHANGE TRANSACTIONS
Sec.
16
List of Subjects in 12 CFR part 349
Consumer protection, Definitions, Foreign currencies, Foreign exchange, State
nonmember insured bank, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the FDIC proposes to add part 349 to Title
12, Chapter III of the Code of Federal Regulations to read as follows:
PART 349—RETAIL FOREIGN EXCHANGE TRANSACTIONS
Sec.
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349.1 Authority, purpose, and scope.
349.2 Definitions.
349.3 Prohibited transactions.
349.4 Filing procedures.
349.5 Application and closing out of offsetting long and short positions.
349.6 Disclosure.
349.7 Recordkeeping.
349.8 Capital requirements.
349.9 Margin requirements.
349.10 Required reporting to customers.
349.11 Unlawful representations.
349.12 Authorization to trade.
349.13 Trading and operational standards.
349.14 Supervision.
349.15 Notice of transfers.
349.16 Customer dispute resolution.
Authority: 12 U.S.C. §§ 1813(q), 1818, 1819, and 3108; 7 U.S.C. § 2(c)(2)(E).
§ 349.1 Authority, purpose and scope.
(a) Authority. An FDIC-supervised insured depository institution that engages in
retail forex transactions shall comply with the requirements of this part.
(b) Purpose. This part establishes rules applicable to retail forex transactions
engaged in by FDIC-supervised insured depository institutions and applies on or after the
effective date.
(c) Scope. This part applies to FDIC-supervised insured depository institutions.
§ 349.2 Definitions.
For purposes of this part—
The following terms have the same meaning as in the Commodity Exchange Act:
“affiliated person of a futures commission merchant”; “associated person”; “contract of
sale”; “commodity”; “eligible contract participant”; “futures commission merchant”;
“security”; and “security futures product.”
Affiliate has the same meaning as in section 2(k) of the Bank Holding Company
Act of 1956 (12 U.S.C. 1841(k)).
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C
“affiliated person of a futures commission merchant”; “associated person”; “contract of
sale”; “commodity”; “eligible contract participant”; “futures commission merchant”;
“security”; and “security futures product.”
Affiliate has the same meaning as in section 2(k) of the Bank Holding Company
Act of 1956 (12 U.S.C. 1841(k)).
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. 1 et
seq.).
FDIC-supervised insured depository institution means any insured depository
institution, or foreign bank having an insured branch for which the Federal Deposit
Insurance Corporation is the appropriate Federal banking agency pursuant to § 3(q) of the
Federal Deposit Insurance Act, 12 U.S.C. § 1813(q).
Forex means foreign exchange.
Institution-affiliated party or IAP has the same meaning as in 12 U.S.C.
1813(u)(1), (2), or (3).
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Insured depository institution or IDI has the same meaning as in 12 U.S.C.
1813(c)(2).
Introducing broker means any person who solicits or accepts orders from a retail
forex customer in connection with retail forex transactions.
Retail forex account means the account of a retail forex customer, established
with an FDIC-supervised insured depository institution, in which retail forex transactions
with the FDIC-supervised insured depository institution as counterparty are undertaken,
or the account of a retail forex customer that is established in order to enter into such
transactions.
Retail forex account agreement means the contractual agreement between an
FDIC-supervised insured depository institution and a retail forex customer that contains
the terms governing the customer's retail forex account with the FDIC-supervised insured
depository institution.
Retail forex business means engaging in one or more retail forex transactions with
the intent to derive income from those transactions, either directly or indirectly
actual agreement between an
FDIC-supervised insured depository institution and a retail forex customer that contains
the terms governing the customer's retail forex account with the FDIC-supervised insured
depository institution.
Retail forex business means engaging in one or more retail forex transactions with
the intent to derive income from those transactions, either directly or indirectly.
Retail forex customer means a customer that is not an eligible contract participant,
acting on his, her, or its own behalf and engaging in retail forex transactions.
Retail forex proprietary account means a retail forex account carried on the books
of an FDIC-supervised insured depository institution for one of the following persons; a
retail forex account of which 10 percent or more is owned by one of the following
persons; or a retail forex account of which an aggregate of 10 percent or more of which is
owned by more than one of the following persons:
(1) The FDIC-supervised insured depository institution;
(2) An officer, director or owner of ten percent or more of the capital stock of the
FDIC-supervised insured depository institution; or
(3) An employee of the FDIC-supervised insured depository institution, whose
duties include:
(i) The management of the FDIC-supervised insured depository institution’s
business;
(ii) The handling of the FDIC-supervised insured depository institution’s retail
forex transactions;
(iii) The keeping of records, including without limitation the software used to
make or maintain those records, pertaining to the FDIC-supervised insured depository
institution’s retail forex transactions; or
(iv) The signing or co-signing of checks or drafts on behalf of the FDIC-
supervised insured depository institution;
(4) A spouse or minor dependent living in the same household as of any of the
foregoing persons; or
(5) An affiliate of the FDIC-supervised insured depository institution;
Retail forex counterparty includes, as appropriate:
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rex transactions; or
(iv) The signing or co-signing of checks or drafts on behalf of the FDIC-
supervised insured depository institution;
(4) A spouse or minor dependent living in the same household as of any of the
foregoing persons; or
(5) An affiliate of the FDIC-supervised insured depository institution;
Retail forex counterparty includes, as appropriate:
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(1) An FDIC-supervised insured depository institution;
(2) A retail foreign exchange dealer;
(3) A futures commission merchant; and
(4) An affiliated person of a futures commission merchant.
Related person, when used in reference to a retail forex counterparty, means:
(1) Any general partner, officer, director, or owner of 10 percent or more of the
capital stock of the FDIC-supervised insured depository institution;
(2) An associated person or employee of the retail forex counterparty, if the retail
forex counterparty is not an FDIC-supervised insured depository institution;
(3) An IAP, if the retail forex counterparty is an FDIC-supervised insured
depository institution; and
(4) Any relative or spouse of any of the foregoing persons, or any relative of such
spouse, who shares the same home as any of the foregoing persons.
Retail forex transaction means an agreement, contract, or transaction in foreign
currency that is offered or entered into by an FDIC-supervised insured depository
institution with a person that is not an eligible contract participant and that is:
(1) A contract of sale of a commodity for future delivery or an option on such a
contract;
(2) 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. 78(f)(a)); or
rvised insured depository
institution with a person that is not an eligible contract participant and that is:
(1) A contract of sale of a commodity for future delivery or an option on such a
contract;
(2) 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. 78(f)(a)); or
(3) Offered or entered into on a leveraged or margined basis, or financed by an
FDIC-supervised insured depository institution, its affiliate, or any person acting in
concert with the FDIC-supervised insured depository institution or its affiliate on a
similar basis, other than:
(i) A security that is not a security futures product as defined in section 1a(47) of
the Commodity Exchange Act (7 U.S.C. 1a(47)); or
(ii) A contract of sale that—
(A) Results in actual delivery within two days; or
(B) Creates an enforceable obligation to deliver between a seller and buyer that
have the ability to deliver and accept delivery, respectively, in connection with their line
of business.
Retail foreign exchange dealer means any person other than a retail forex
customer that is, or that offers to be, the counterparty to a retail forex transaction, except
for a person described in item (aa), (bb), (cc)(AA), (dd), or (ff) of section 2(c)(2)(B)(i)(II)
of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)(i)(II)).
§ 349.3 Prohibited transactions.
(a) Fraudulent conduct prohibited. No FDIC-supervised insured depository
institution or its IAPs may, directly or indirectly, in or in connection with any retail forex
transaction:
(1) Cheat or defraud or attempt to cheat or defraud any person;
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(2) Willfully make or cause to be made to any person any false report or statement
or cause to be entered for any person any false record; or
(3) Willfully deceive or attempt to deceive any person by any means whatsoever.
ectly or indirectly, in or in connection with any retail forex
transaction:
(1) Cheat or defraud or attempt to cheat or defraud any person;
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(2) Willfully make or cause to be made to any person any false report or statement
or cause to be entered for any person any false record; or
(3) Willfully deceive or attempt to deceive any person by any means whatsoever.
(b) Acting as counterparty and exercising discretion prohibited. If an FDIC-
supervised insured depository institution can cause retail forex transactions to be effected
for a retail forex customer without the retail forex customer’s specific authorization, then
neither the FDIC-supervised insured depository institution nor its affiliates may act as the
counterparty for any retail forex transaction with that retail forex customer.
§ 349.4 Filing procedures.
(a) General. Before commencing a retail forex business, an FDIC-supervised insured
depository institution shall provide the FDIC prior written notice and obtain the FDIC’s
prior written consent.
(b) Where to file. A notice required by this section shall be submitted in writing to the
appropriate FDIC office.
(c) Contents of filing. A complete letter notice shall include the following information:
(1) Filings generally. (i) A brief description of the FDIC-supervised institution’s
proposed retail forex business and the manner in which it will be conducted;
(ii) The amount of the institution's existing or proposed direct or indirect
investment in the retail forex business as well as calculations sufficient to indicate
compliance with all capital requirements in § 349.8 and all other applicable capital
standards;
(iii) A copy of the FDIC-supervised insured depository institution’s
comprehensive business plan that includes a discussion of, among other things, how the
operation of the retail forex business is consistent with the institution’s overall strategy;
s well as calculations sufficient to indicate
compliance with all capital requirements in § 349.8 and all other applicable capital
standards;
(iii) A copy of the FDIC-supervised insured depository institution’s
comprehensive business plan that includes a discussion of, among other things, how the
operation of the retail forex business is consistent with the institution’s overall strategy;
(iv) A description of the FDIC-supervised insured depository institution’s target
customers for its proposed retail forex business and related information, including
without limitation credit evaluations, customer appropriateness, and “know your
customer” documentation;
(v) A resolution by the FDIC-supervised insured depository institution’s board of
directors that the proposed retail forex business is an appropriate activity for the
institution and that the institution’s written policies, procedures, and risk measurement
and management systems and controls address conducting retail forex business in a safe
and sound manner and in compliance with this part;
(vi) Sample risk disclosures sufficient to demonstrate compliance with § 349.6.
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(2) Copy of application or notice filed with another agency. If an FDIC-supervised
insured depository institution has filed an application or notice with another regulatory
authority which contains all of the information required by subparagraph (c)(1) of this
part, the institution may submit a copy to the FDIC in lieu of a separate filing.
(3) Additional information. The FDIC may request additional information to
complete the processing of the notification.
rvised
insured depository institution has filed an application or notice with another regulatory
authority which contains all of the information required by subparagraph (c)(1) of this
part, the institution may submit a copy to the FDIC in lieu of a separate filing.
(3) Additional information. The FDIC may request additional information to
complete the processing of the notification.
(d) Treatment of Existing Retail Forex Business. Any FDIC-supervised insured
depository institution that is engaged in retail forex business on the effective date of this
part may continue to do so for up to six months, subject to an extension of time by the
FDIC, provided that it notifies the FDIC of its retail forex business and requests the
FDIC’s written consent in accordance with paragraph (a).
(e) Compliance with the Commodities Exchange Act. Any FDIC-supervised insured
depository institution that is engaged in retail forex business on the effective date of this
part shall be deemed, during the six-month period (including any extension) provided in
paragraph (e) of this section, to be acting pursuant to a rule or regulation described in
section 2(c)(2)(E)(ii)(I) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(E)(ii)(I)).
§ 349.5 Application and closing out of offsetting long and short positions.
(a) Application of purchases and sales. Any FDIC-supervised insured depository
institution that—
(1) Engages in a retail forex transaction involving the purchase of any currency
for the account of any retail forex customer when the account of such retail forex
customer at the time of such purchase has an open retail forex transaction for the sale of
the same currency;
(2) Engages in a retail forex transaction involving the sale of any currency for the
account of any retail forex customer when the account of such retail forex customer at the
time of such sale has an open retail forex transaction for the purchase of the same
currency;
etail forex
customer at the time of such purchase has an open retail forex transaction for the sale of
the same currency;
(2) Engages in a retail forex transaction involving the sale of any currency for the
account of any retail forex customer when the account of such retail forex customer at the
time of such sale has an open retail forex transaction for the purchase of the same
currency;
(3) Purchases a put or call option involving foreign currency for the account of
any retail forex customer when the account of such retail forex customer at the time of
such purchase has a short put or call option position with the same underlying currency,
strike price, and expiration date as that purchased; or
(4) Sells a put or call option involving foreign currency for the account of any
retail forex customer when the account of such retail forex customer at the time of such
sale has a long put or call option position with the same underlying currency, strike price,
and expiration date as that sold shall:
(i) Immediately apply such purchase or sale against such previously held opposite
transaction; and
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(ii) Promptly furnish such retail forex customer with a statement showing the
financial result of the transactions involved and the name of any introducing broker to the
account.
(b) Close-out against oldest open position. In all instances where the short or long
position in a customer’s retail forex account immediately prior to an offsetting purchase
or sale is greater than the quantity purchased or sold, the FDIC-supervised insured
depository institution shall apply such offsetting purchase or sale to the oldest portion of
the previously held short or long position.
(b) Close-out against oldest open position. In all instances where the short or long
position in a customer’s retail forex account immediately prior to an offsetting purchase
or sale is greater than the quantity purchased or sold, the FDIC-supervised insured
depository institution shall apply such offsetting purchase or sale to the oldest portion of
the previously held short or long position.
(c) Transactions to be applied as directed by customer. Notwithstanding
paragraph (b) of this section, the offsetting transaction shall be applied as directed by a
retail forex customer’s specific written instructions. These instructions may not be made
by the FDIC-supervised insured depository institution or an IAP.
§ 349.6 Disclosure.
(a) Risk disclosure statement required. No FDIC-supervised insured depository
institution may open or maintain open an account that will engage in retail forex
transactions for a retail forex customer unless the FDIC-supervised insured depository
institution has furnished the retail forex customer with a separate written disclosure
statement containing only the language set forth in paragraph (d) of this section and the
disclosures required by paragraphs (e) and (f) of this section.
(b) Acknowledgement of risk disclosure statement required. The FDIC-supervised
insured depository institution must receive from the retail forex customer a written
acknowledgement signed and dated by the customer that the customer received and
understood the written disclosure statement required by paragraph (a) of this section.
(c) Placement of risk disclosure statement. The disclosure statement may be
attached to other documents as the initial page(s) of such documents and as the only
material on such page(s).
rom the retail forex customer a written
acknowledgement signed and dated by the customer that the customer received and
understood the written disclosure statement required by paragraph (a) of this section.
(c) Placement of risk disclosure statement. The disclosure statement may be
attached to other documents as the initial page(s) of such documents and as the only
material on such page(s).
(d) Content of risk disclosure statement. The language set forth in the written
disclosure statement required by paragraph (a) of this section shall be as follows:
Risk Disclosure Statement
Retail forex transactions involve the leveraged trading of contracts
denominated in foreign currency with an FDIC-supervised insured depository
institution as your counterparty. Because of the leverage and the other risks
disclosed here, you can rapidly lose all of the funds you give the FDIC-supervised
insured depository institution as margin for such trading and you may lose more
than you pledge as margin.
Your FDIC-supervised insured depository institution is prohibited from
applying losses that you experience on retail forex transactions on any funds or
property of yours other than funds or property that you have given or pledged as
margin for retail forex transactions.
You should be aware of and carefully consider the following points before
determining whether such trading is appropriate for you.
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titution is prohibited from
applying losses that you experience on retail forex transactions on any funds or
property of yours other than funds or property that you have given or pledged as
margin for retail forex transactions.
You should be aware of and carefully consider the following points before
determining whether such trading is appropriate for you.
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(1) Trading is a not on a regulated market or exchange—your FDIC-
supervised insured depository institution is your trading counterparty and has
conflicting interests. The retail forex transaction you are entering into is not conducted
on an interbank market, nor is it conducted on a futures exchange subject to regulation as
a designated contract market by the Commodity Futures Trading Commission. The
foreign currency trades you transact are trades with your FDIC-supervised insured
depository institution as the counterparty. When you sell, the FDIC-supervised insured
depository institution is the buyer. When you buy, the FDIC-supervised insured
depository institution is the seller. As a result, when you lose money trading, your
FDIC-supervised insured depository institution is making money on such trades, in
addition to any fees, commissions, or spreads the FDIC-supervised insured depository
institution may charge.
(2) An electronic trading platform for retail foreign currency transactions is
not an exchange. It is an electronic connection for accessing your FDIC-supervised
insured depository institution. The terms of availability of such a platform are
governed only by your contract with your FDIC-supervised insured depository
institution. Any trading platform that you may use to enter into off-exchange foreign
currency transactions is only connected to your FDIC-supervised insured depository
institution. You are accessing that trading platform only to transact with your FDIC-
supervised insured depository institution
of such a platform are
governed only by your contract with your FDIC-supervised insured depository
institution. Any trading platform that you may use to enter into off-exchange foreign
currency transactions is only connected to your FDIC-supervised insured depository
institution. You are accessing that trading platform only to transact with your FDIC-
supervised insured depository institution. You are not trading with any other entities or
customers of the FDIC-supervised insured depository institution by accessing such
platform. The availability and operation of any such platform, including the
consequences of the unavailability of the trading platform for any reason, is governed
only by the terms of your account agreement with the FDIC-supervised insured
depository institution.
(3) You may be able to offset or liquidate any trading positions only through
your banking entity because the transactions are not made on an exchange or
regulated contract market, and your FDIC-supervised insured depository
institution may set its own prices. Your ability to close your transactions or offset
positions is limited to what your FDIC-supervised insured depository institution will
offer to you, as there is no other market for these transactions. Your FDIC-supervised
insured depository institution may offer any prices it wishes, including prices derived
from outside sources or not in its discretion. Your FDIC-supervised insured depository
institution may establish its prices by offering spreads from third party prices, but it is
under no obligation to do so or to continue to do so. Your FDIC-supervised insured
depository institution may offer different prices to different customers at any point in
time on its own terms. The terms of your account agreement alone govern the obligations
your FDIC-supervised insured depository institution has to you to offer prices and offer
offset or liquidating transactions in your account and make any payments to you
to continue to do so. Your FDIC-supervised insured
depository institution may offer different prices to different customers at any point in
time on its own terms. The terms of your account agreement alone govern the obligations
your FDIC-supervised insured depository institution has to you to offer prices and offer
offset or liquidating transactions in your account and make any payments to you. The
prices offered by your FDIC-supervised insured depository institution may or may not
reflect prices available elsewhere at any exchange, interbank, or other market for foreign
currency.
(4) Paid solicitors may have undisclosed conflicts. The FDIC-supervised
insured depository institution may compensate introducing brokers for introducing your
account in ways that are not disclosed to you. Such paid solicitors are not required to
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have, and may not have, any special expertise in trading, and may have conflicts of
interest based on the method by which they are compensated. You should thoroughly
investigate the manner in which all such solicitors are compensated and be very cautious
in granting any person or entity authority to trade on your behalf. You should always
consider obtaining dated written confirmation of any information you are relying on from
your FDIC-supervised insured depository institution in making any trading or account
decisions.
(5) This transaction is not insured by the Federal Deposit Insurance
Corporation.
(6) This transaction is not a deposit in, or guaranteed by, an FDIC-
supervised insured depository institution.
should always
consider obtaining dated written confirmation of any information you are relying on from
your FDIC-supervised insured depository institution in making any trading or account
decisions.
(5) This transaction is not insured by the Federal Deposit Insurance
Corporation.
(6) This transaction is not a deposit in, or guaranteed by, an FDIC-
supervised insured depository institution.
(7) This transaction is subject to investment risks, including possible loss of
all amounts invested.
Finally, you should thoroughly investigate any statements by any FDIC-
supervised insured depository institution that minimize the importance of, or
contradict, any of the terms of this risk disclosure. Such statements may indicate
sales fraud.
This brief statement cannot, of course, disclose all the risks and other aspects
of trading off-exchange foreign currency with an FDIC-supervised insured
depository institution.
I hereby acknowledge that I have received and understood this risk disclosure statement.
_________________________________________
Date
_________________________________________
Signature of Customer
(e)(1) Disclosure of profitable accounts ratio. Immediately following the language
set forth in paragraph (d) of this section, the statement required by paragraph (a) of this
section shall include, for each of the most recent four calendar quarters during which the
FDIC-supervised insured depository institution maintained retail forex customer
accounts:
_______________
Signature of Customer
(e)(1) Disclosure of profitable accounts ratio. Immediately following the language
set forth in paragraph (d) of this section, the statement required by paragraph (a) of this
section shall include, for each of the most recent four calendar quarters during which the
FDIC-supervised insured depository institution maintained retail forex customer
accounts:
(i) The total number of retail forex customer accounts maintained by the FDIC-
supervised insured depository institution over which the FDIC-supervised insured
depository institution does not exercise investment discretion;
(ii) The percentage of such accounts that were profitable for retail forex customer
accounts during the quarter; and
(iii) The percentage of such accounts that were not profitable for retail forex
customer accounts during the quarter.
(2) The FDIC-supervised insured depository institution’s statement of profitable
trades shall include the following legend: Past performance is not necessarily
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indicative of future results. Each FDIC-supervised insured depository institution shall
provide, upon request, to any retail forex customer or prospective retail forex customer
the total number of retail forex accounts maintained by the FDIC-supervised insured
depository institution for which the FDIC-supervised insured depository institution does
not exercise investment discretion, the percentage of such accounts that were profitable,
and the percentage of such accounts that were not profitable for each calendar quarter
during the most recent five-year period during which the FDIC-supervised insured
depository institution maintained such accounts.
(f) Disclosure of fees and other charges. Immediately following the language
required by paragraph (e) of this section, the statement required by paragraph (a) of this
section shall include:
age of such accounts that were not profitable for each calendar quarter
during the most recent five-year period during which the FDIC-supervised insured
depository institution maintained such accounts.
(f) Disclosure of fees and other charges. Immediately following the language
required by paragraph (e) of this section, the statement required by paragraph (a) of this
section shall include:
(i) The amount of any fee, charge, commission, or spreads that the FDIC-
supervised insured depository institution may impose on the retail forex customer in
connection with a retail forex account or retail forex transaction;
(ii) An explanation of how the FDIC-supervised insured depository institution
will determine the amount of such fees, charges, commissions, or spreads; and
(iii) The circumstances under which the FDIC-supervised insured depository
institution may impose such fees, charges, commissions, or spreads.
(g) Future disclosure requirements. If, with regard to a retail forex customer, the
FDIC-supervised insured depository institution changes any fee, charge, commission or
spreads required to be disclosed under paragraph (f) of this section, then the FDIC-
supervised insured depository institution shall mail or deliver to the retail forex customer
a notice of the changes at least 15 days prior to the effective date of the change.
(h) Form of disclosure requirements. The disclosures required by this section shall
be clear and conspicuous and designed to call attention to the nature and significance of
the information provided.
(i) Other disclosure requirements unaffected. This section does not relieve an
FDIC-supervised insured depository institution from any other disclosure obligation it
may have under applicable law.
§ 349.7 Recordkeeping.
ements. The disclosures required by this section shall
be clear and conspicuous and designed to call attention to the nature and significance of
the information provided.
(i) Other disclosure requirements unaffected. This section does not relieve an
FDIC-supervised insured depository institution from any other disclosure obligation it
may have under applicable law.
§ 349.7 Recordkeeping.
(a) General rule. An FDIC-supervised insured depository institution engaging in
retail forex transactions shall keep full, complete and systematic records, together with all
pertinent data and memoranda, of all transactions relating to its retail forex business,
including:
(1) Retail forex account records for each customer reflecting:
(i) The name and address of the person for who such retail forex account is
carried or introduced and the principal occupation or business of such person.
(ii) The name of any other person guaranteeing such retail forex account or
exercising trading control with respect to such account;
(iii) The establishment or termination of each retail forex account; and
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(iv) For each retail forex account the records must also show the name of the
person who has solicited and is responsible for the account or assign account numbers in
such a manner as to identify that person.
(2) Financial ledger records that show separately for each retail forex customer all
charges against and credits to such retail forex customer’s account, including but not
limited to retail forex customer funds deposited, withdrawn, or transferred, and charges
or credits resulting from losses or gains on closed transactions.
(3) Transaction records that show separately for each retail forex account and
each retail forex proprietary account:
or each retail forex customer all
charges against and credits to such retail forex customer’s account, including but not
limited to retail forex customer funds deposited, withdrawn, or transferred, and charges
or credits resulting from losses or gains on closed transactions.
(3) Transaction records that show separately for each retail forex account and
each retail forex proprietary account:
(i) All retail forex transactions that are futures transactions executed for such
account, including the date, price, quantity, market, currency pair, and delivery date;
(ii) All retail forex transactions that are option transactions executed for such
account, including the date, whether the transaction involved a put or call, expiration
date, quantity, underlying contract for future delivery or underlying physical, strike price,
and details of the purchase price of the option, including premium, mark-up, commission,
and fees; and
(iii) All other retail forex transactions that are executed for such account,
including the date, price, quantity, and currency pair.
(4) Daily records which show for each business day complete details of:
(i) All retail forex transactions that are futures transactions executed on that day,
including the date, price, quantity, market, currency pair, delivery date, and the person for
whom such transaction was made;
(ii) All retail forex transactions that are option transactions executed on that day,
including the date, whether the transaction involved a put or call, the expiration date,
quantity, currency pair, delivery date, strike price, details of the purchase price of the
option, including premium, mark-up, commission and fees, and the person for whom the
transaction was made; and
(iii) All other retail forex transactions executed on that day for such account,
including the date, price, quantity, currency and the person for whom such transaction
was made.
ration date,
quantity, currency pair, delivery date, strike price, details of the purchase price of the
option, including premium, mark-up, commission and fees, and the person for whom the
transaction was made; and
(iii) All other retail forex transactions executed on that day for such account,
including the date, price, quantity, currency and the person for whom such transaction
was made.
(5) Memorandum order (order ticket). Except as provided in paragraph (a)(6) of
this section, immediately upon the written or verbal receipt of a retail forex transaction
order, an FDIC-supervised insured depository institution shall prepare a separate written
memorandum order (order ticket) for the order (whether unfulfilled, executed or
canceled), including:
(i) Account identification (account or customer name with which the retail forex
transaction was effected);
(ii) Order number;
(iii) Type of order (market order, limit order, or subject to special instructions);
(iv) Date and time, to the nearest minute, the retail forex transaction order was
received (as evidenced by timestamp or other timing device);
(v) Time, to the nearest minute, the retail forex transaction order was executed;
and
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(vi) Price at which the retail forex transaction was executed.
(6) Post-execution allocation of bunched orders. Specific customer account
identifiers for accounts included in bunched orders need not be recorded at time of order
placement or upon report of execution as required under paragraph (a)(5) of this section if
the following requirements are met:
and
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(vi) Price at which the retail forex transaction was executed.
(6) Post-execution allocation of bunched orders. Specific customer account
identifiers for accounts included in bunched orders need not be recorded at time of order
placement or upon report of execution as required under paragraph (a)(5) of this section if
the following requirements are met:
(i) The FDIC-supervised insured depository institution placing and directing the
allocation of an order eligible for post-execution allocation has been granted written
investment discretion with regard to participating customer accounts and makes the
following information available to customers upon request:
(A) The general nature of the allocation methodology the FDIC-supervised
insured depository institution will use;
(B) Whether the FDIC-supervised insured depository institution has any interest
in accounts which may be included with customer accounts in bunched orders eligible for
post-execution allocation; and
(C) Summary or composite data sufficient for that customer to compare its results
with those of other comparable customers and, if applicable, any account in which the
FDIC-supervised insured depository institution has an interest.
(ii) An FDIC-supervised insured depository institution must allocate orders
eligible for post-execution allocation in accordance with the following:
(A) Allocations must be made as soon as practicable after the entire transaction is
executed;
(B) Allocations must be fair and equitable; no account or group of accounts may
receive consistently favorable or unfavorable treatment; and
(C) The allocation methodology must be sufficiently objective and specific to
permit independent verification of the fairness of the allocations using that methodology
by the FDIC.
e made as soon as practicable after the entire transaction is
executed;
(B) Allocations must be fair and equitable; no account or group of accounts may
receive consistently favorable or unfavorable treatment; and
(C) The allocation methodology must be sufficiently objective and specific to
permit independent verification of the fairness of the allocations using that methodology
by the FDIC.
(7) Other records. Other records covered by this section include written
acknowledgements of receipt of the risk disclosure statement required by § 349.6(b),
trading cards, signature cards, street books, journals, ledgers, payment records, copies of
statements of purchase, and all other records, data and memoranda that have been
prepared in the course of the FDIC-supervised insured depository institution’s retail forex
business.
(b) Ratio of profitable accounts. (1) With respect to its active retail forex customer
accounts over which it did not exercise investment discretion and that are not retail forex
proprietary accounts open for any period of time during the quarter, an FDIC-supervised
insured depository institution shall prepare and maintain on a quarterly basis (calendar
quarter):
(i) A calculation of the percentage of such accounts that were profitable;
(ii) A calculation of the percentage of such accounts that were not profitable; and
(iii) Data supporting the calculations described in paragraphs (b)(1)(i) and
r any period of time during the quarter, an FDIC-supervised
insured depository institution shall prepare and maintain on a quarterly basis (calendar
quarter):
(i) A calculation of the percentage of such accounts that were profitable;
(ii) A calculation of the percentage of such accounts that were not profitable; and
(iii) Data supporting the calculations described in paragraphs (b)(1)(i) and
(b)(1)(ii) of this section.
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(2) In calculating whether a retail forex account was profitable or not profitable
during the quarter, the FDIC-supervised insured depository institution shall compute the
realized and unrealized gains or losses on all retail forex transactions carried in the retail
forex account at any time during the quarter, and subtract all fees, commissions, and any
other charges posted to the retail forex account during the quarter, and add any interest
income and other income or rebates credited to the retail forex account during the quarter.
All deposits and withdrawals of funds made by the retail forex customer during the
quarter must be excluded from the computation of whether the retail forex account was
profitable or not profitable during the quarter. Computations that result in a zero or
negative number shall be considered a retail forex account that was not profitable.
Computations that result in a positive number shall be considered a retail forex account
that was profitable.
(3) A retail forex account shall be considered “active” for purposes of paragraph
(b)(1) of this section if and only if, for the relevant calendar quarter, a retail forex
transaction was executed in that account or the retail forex account contained an open
position resulting from a retail forex transaction.
in a positive number shall be considered a retail forex account
that was profitable.
(3) A retail forex account shall be considered “active” for purposes of paragraph
(b)(1) of this section if and only if, for the relevant calendar quarter, a retail forex
transaction was executed in that account or the retail forex account contained an open
position resulting from a retail forex transaction.
(c) Records related to possible violations of law. An FDIC-supervised insured
depository institution engaging in retail forex transactions shall make a record of all
communications, including customer complaints, received by the FDIC-supervised
insured depository institution or its IAPs concerning facts giving rise to possible
violations of law related to the FDIC-supervised insured depository institution’s retail
forex business. The record shall contain: the name of the complainant, if provided; the
date of the communication; the relevant agreement, contract, or transaction; the substance
of the communication; the name of the person who received the communication, and the
final disposition of the matter.
(d) Records for noncash margin. An FDIC-supervised insured depository
institution shall maintain a record of all noncash margin collected pursuant to § 349.9.
The record shall show separately for each retail forex customer:
(1) A description of the securities or property received;
(2) The name and address of such retail forex customer;
(3) The dates when the securities or property were received;
(4) The identity of the depositories or other places where such securities or
property are segregated or held, if applicable;
(5) The dates in which the FDIC-supervised insured depository institution placed
or removed such securities or property into or from such depositories; and
(6) The dates of return of such securities or property to such retail forex customer,
or other disposition thereof, together with the facts and circumstances of such other
disposition.
or
property are segregated or held, if applicable;
(5) The dates in which the FDIC-supervised insured depository institution placed
or removed such securities or property into or from such depositories; and
(6) The dates of return of such securities or property to such retail forex customer,
or other disposition thereof, together with the facts and circumstances of such other
disposition.
(e) Record of monthly statements and confirmations. An FDIC-supervised insured
depository institution shall retain a copy of each monthly statement and confirmation
required by § 349.10.
(f) Manner of maintenance. The records required by this section must clearly and
accurately reflect the information required and provide an adequate basis for the audit of
the information. Record maintenance may include the use of automated or electronic
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records provided that the records are easily retrievable, readily available for inspection,
and capable of being reproduced in hard copy.
(g) Length of maintenance. An FDIC-supervised insured depository institution
shall keep each record required by this section for at least five years from the date the
record is created.
§ 349.8 Capital requirements.
An FDIC-supervised insured depository institution offering or entering into retail
forex transactions must be well capitalized as defined by 12 CFR part 325, unless
specifically exempted by the FDIC in writing.
§ 349.9 Margin requirements
itution
shall keep each record required by this section for at least five years from the date the
record is created.
§ 349.8 Capital requirements.
An FDIC-supervised insured depository institution offering or entering into retail
forex transactions must be well capitalized as defined by 12 CFR part 325, unless
specifically exempted by the FDIC in writing.
§ 349.9 Margin requirements
(a) Margin required. An FDIC-supervised insured depository institution engaging,
or offering to engage, in retail forex transactions must collect from each retail forex
customer an amount of margin not less than:
(1) 2 percent of the notional value of the retail forex transaction for major
currency pairs and 5 percent of the notional value of the retail forex transaction for all
other currency pairs;
(2) For short options, 2 percent for major currency pairs and 5 percent for all other
currency pairs of the notional value of the retail forex transaction, plus the premium
received by the retail forex customer; or
(3) For long options, the full premium charged and received by the FDIC-
supervised insured depository institution.
(b)(1) Form of margin. Margin collected under paragraph (a) of this section or
pledged by a retail forex customer in excess of the requirements of paragraph (a) of this
section must be in the form of cash or the following financial instruments:
(i) Obligations of the United States and obligations fully guaranteed as to
principal and interest by the United States;
(ii) General obligations of any State or of any political subdivision thereof;
(iii) General obligations issued or guaranteed by any enterprise, as defined in 12
U.S.C. 4502(10);
(iv) Certificates of deposit issued by an insured depository institution, as defined
in section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2));
principal and interest by the United States;
(ii) General obligations of any State or of any political subdivision thereof;
(iii) General obligations issued or guaranteed by any enterprise, as defined in 12
U.S.C. 4502(10);
(iv) Certificates of deposit issued by an insured depository institution, as defined
in section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2));
(v) Commercial paper;
(vi) Corporate notes or bonds;
(vii) General obligations of a sovereign nation;
(viii) Interests in money market mutual funds; and
(ix) Such other financial instruments as the FDIC deems appropriate.
(2) Haircuts. An FDIC-supervised insured depository institution shall establish
written policies and procedures that include:
(i) Haircuts for noncash margin collected under this section; and
(ii) Annual evaluation, and, if appropriate, modification of the haircuts.
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(c) Separate margin account. Margin collected by the FDIC-supervised insured
depository institution from a retail forex customer for retail forex transactions or pledged
by a retail forex customer for retail forex transactions shall be placed into a separate
account containing only such margin.
(d) Margin calls; liquidation of position. For each retail forex customer, at least
once per day, an FDIC-supervised insured depository institution shall:
(1) Mark the value of the retail forex customer’s open retail forex positions to
market;
(2) Mark the value of the margin collected under this section from the retail forex
customer to market;
(3) Determine if, based on the marks in paragraphs (c)(1) and (c)(2) of this
section, the FDIC-supervised insured depository institution has collected margin from the
retail forex customer sufficient to satisfy the requirements of this section; and
s open retail forex positions to
market;
(2) Mark the value of the margin collected under this section from the retail forex
customer to market;
(3) Determine if, based on the marks in paragraphs (c)(1) and (c)(2) of this
section, the FDIC-supervised insured depository institution has collected margin from the
retail forex customer sufficient to satisfy the requirements of this section; and
(4) Collect such margin from the retail forex customer as the FDIC-supervised
insured depository institution may require to satisfy the requirements of this section, or
liquidate the retail forex customer’s retail forex transactions.
(e) Set-off prohibited. An FDIC-supervised insured depository institution may
not:
(1) Apply a retail forex customer’s losses on retail forex transactions against any
funds or other asset of the retail forex customer other than margin in the retail forex
customer’s separate margin account described in paragraph (c) of this section;
(2) Apply a retail forex customer’s losses on retail forex transactions to increase
the amount owed by the retail forex customer to the FDIC-supervised insured depository
institution under any loan; or
(3) Collect the margin required under this section by use of any right of set-off.
§ 349.10 Required reporting to customers.
(a) Monthly statements. Each FDIC-supervised insured depository institution
must promptly furnish to each retail forex customer, as of the close of the last business
day of each month or as of any regular monthly date selected, except for accounts in
which there are neither open positions at the end of the statement period nor any changes
to the account balance since the prior statement period, but in any event not less
frequently than once every three months, a statement that clearly shows:
(1) For each retail forex customer:
close of the last business
day of each month or as of any regular monthly date selected, except for accounts in
which there are neither open positions at the end of the statement period nor any changes
to the account balance since the prior statement period, but in any event not less
frequently than once every three months, a statement that clearly shows:
(1) For each retail forex customer:
(i) The open retail forex transactions with prices at which acquired;
(ii) The net unrealized profits or losses in all open retail forex transactions marked
to the market;
(iii) Any money, securities or other property in the separate margin account
required by § 349.9(c); and
(iv) A detailed accounting of all financial charges and credits to the retail forex
customer’s retail forex accounts during the monthly reporting period, including: money,
securities, or property received from or disbursed to such customer; realized profits and
losses; and fees, charges, commissions, and spreads.
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(2) For each retail forex customer engaging in retail forex transactions that are
options:
(i) All such options purchased, sold, exercised, or expired during the monthly
reporting period, identified by underlying retail forex transaction or underlying currency,
strike price, transaction date, and expiration date;
(ii) The open option positions carried for such customer and arising as of the end
of the monthly reporting period, identified by underlying retail forex transaction or
underlying currency, strike price, transaction date, and expiration date;
(iii) All such option positions marked to the market and the amount each position
is in the money, if any;
(iv) Any money, securities or other property in the separate margin account
required by § 349.9(c); and
arising as of the end
of the monthly reporting period, identified by underlying retail forex transaction or
underlying currency, strike price, transaction date, and expiration date;
(iii) All such option positions marked to the market and the amount each position
is in the money, if any;
(iv) Any money, securities or other property in the separate margin account
required by § 349.9(c); and
(v) A detailed accounting of all financial charges and credits to the retail forex
customer’s retail forex accounts during the monthly reporting period, including: money,
securities, or property received from or disbursed to such customer; realized profits and
losses; premiums and mark-ups; and fees, charges, and commissions.
(b) Confirmation statement. Each FDIC-supervised insured depository institution
must, not later than the next business day after any retail forex transaction, send:
(1) To each retail forex customer, a written confirmation of each retail forex
transaction caused to be executed by it for the customer, including offsetting transactions
executed during the same business day and the rollover of an open retail forex transaction
to the next business day;
(2) To each retail forex customer engaging in forex option transactions, a written
confirmation of each forex option transaction, containing at least the following
information:
(i) The retail forex customer’s account identification number;
(ii) A separate listing of the actual amount of the premium, as well as each mark-
up thereon, if applicable, and all other commissions, costs, fees and other charges
incurred in connection with the forex option transaction;
(iii) The strike price;
(iv) The underlying retail forex transaction or underlying currency;
information:
(i) The retail forex customer’s account identification number;
(ii) A separate listing of the actual amount of the premium, as well as each mark-
up thereon, if applicable, and all other commissions, costs, fees and other charges
incurred in connection with the forex option transaction;
(iii) The strike price;
(iv) The underlying retail forex transaction or underlying currency;
(v) The final exercise date of the forex option purchased or sold; and
(vi) The date the forex option transaction was executed.
(3) To each retail forex customer engaging in forex option transactions, upon the
expiration or exercise of any option, a written confirmation statement thereof, which
statement shall include the date of such occurrence, a description of the option involved,
and, in the case of exercise, the details of the retail forex or physical currency position
which resulted therefrom including, if applicable, the final trading date of the retail forex
transaction underlying the option.
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(c) Notwithstanding the provisions of paragraphs (b)(1) through (3) of this
section, a retail forex transaction that is caused to be executed for a pooled investment
vehicle that engages in retail forex transactions need be confirmed only to the operator of
such pooled investment vehicle.
(d) Controlled accounts. With respect to any account controlled by any person
other than the retail forex customer for whom such account is carried, each FDIC-
supervised insured depository institution shall promptly furnish in writing to such other
person the information required by paragraphs (a) and (b) of this section.
(e) Introduced accounts. Each statement provided pursuant to the provisions of
this section must, if applicable, show that the account for which the FDIC-supervised
insured depository institution was introduced by an introducing broker and the name of
the introducing broker.
§ 349.11 Unlawful representations.
other
person the information required by paragraphs (a) and (b) of this section.
(e) Introduced accounts. Each statement provided pursuant to the provisions of
this section must, if applicable, show that the account for which the FDIC-supervised
insured depository institution was introduced by an introducing broker and the name of
the introducing broker.
§ 349.11 Unlawful representations.
(a) No implication or representation of limiting losses. No FDIC-supervised
insured depository institution engaged in retail foreign exchange transactions or its IAPs
may imply or represent that it will, with respect to any retail customer forex account, for
or on behalf of any person:
(1) Guarantee such person or account against loss;
(2) Limit the loss of such person or account; or
(3) Not call for or attempt to collect margin as established for retail forex
customers.
(b) No implication of representation of engaging in prohibited acts. No FDIC-
supervised insured depository institution or its IAPs may in any way imply or represent
that it will engage in any of the acts or practices described in paragraph (a) of this section.
(c) No Federal government endorsement. No FDIC-supervised insured depository
institution or its IAPs may represent or imply in any manner whatsoever that any retail
forex transaction or retail forex product has been sponsored, recommended, or approved
by the FDIC, the Federal government, or any agency thereof.
(d) Assuming or sharing of liability from bank error. This section shall not be
construed to prevent an FDIC-supervised insured depository institution from assuming or
sharing in the losses resulting from the FDIC-supervised insured depository institution’s
error or mishandling of a retail forex transaction.
recommended, or approved
by the FDIC, the Federal government, or any agency thereof.
(d) Assuming or sharing of liability from bank error. This section shall not be
construed to prevent an FDIC-supervised insured depository institution from assuming or
sharing in the losses resulting from the FDIC-supervised insured depository institution’s
error or mishandling of a retail forex transaction.
(e) Certain guaranties unaffected. This section shall not affect any guarantee
entered into prior to the effective date of this part, but this section shall apply to any
extension, modification or renewal thereof entered into after such date.
§ 349.12 Authorization to trade.
(a) Specific authorization required. No FDIC-supervised insured depository
institution may directly or indirectly effect a retail forex transaction for the account of
any retail forex customer unless, before the transaction occurs, the retail forex customer
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specifically authorized the FDIC-supervised insured depository institution, in writing, to
effect the retail forex transaction.
(b) A retail forex transaction is “specifically authorized” for purposes of this
section if the retail forex customer specifies:
(1) The precise retail forex transaction to be effected;
(2) The exact amount of the foreign currency to be purchased or sold; and
(3) In the case of an option, the identity of the foreign currency or contract that
underlies the option.
§ 349.13 Trading and operational standards.
ransaction is “specifically authorized” for purposes of this
section if the retail forex customer specifies:
(1) The precise retail forex transaction to be effected;
(2) The exact amount of the foreign currency to be purchased or sold; and
(3) In the case of an option, the identity of the foreign currency or contract that
underlies the option.
§ 349.13 Trading and operational standards.
(a) Internal rules, procedures, and controls required. An FDIC-supervised insured
depository institution engaging in retail forex transactions shall establish and implement
internal rules, procedures, and controls designed, at a minimum, to:
(1) Ensure, to the extent reasonable, that each order received from a retail forex
customer that is executable at or near the price that the FDIC-supervised insured
depository institution has quoted to the customer is entered for execution before any
order in any retail forex transaction for any proprietary account, any other account in
which a related person has an interest, or any account for which such a related person
may originate orders without the prior specific consent of the account owner (if such
related person has gained knowledge of the retail forex customer’s order prior to the
transmission of an order for a proprietary account), an account in which such a related
person has an interest, or an account in which such a related person may originate orders
without the prior specific consent of the account owner;
(2) Prevent FDIC-supervised insured depository institution related persons from
placing orders, directly or indirectly, with another person in a manner designed to
circumvent the provisions of paragraph (a)(1) of this section;
(3) Fairly and objectively establish settlement prices for retail forex transactions;
and
(4) Record and maintain essential information regarding customer orders and
account activity, and to provide such information to customers upon request. Such
information shall include:
indirectly, with another person in a manner designed to
circumvent the provisions of paragraph (a)(1) of this section;
(3) Fairly and objectively establish settlement prices for retail forex transactions;
and
(4) Record and maintain essential information regarding customer orders and
account activity, and to provide such information to customers upon request. Such
information shall include:
(i) Transaction records for the customer’s account, including:
(A) The date and time each order is received by the FDIC-supervised insured
depository institution;
(B) The price at which each order is placed, or, in the case of an option, the
premium paid;
(C) If the transaction was entered into by means of a trading platform, the price
quoted on the trading platform when the order was placed, or, in the case of an option, the
premium quoted;
(D) The customer account identification information;
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(E) The currency pair;
(F) The size of the transaction;
(G) Whether the order was a buy or sell order;
(H) The type of order, if the order was not a market order;
(I) If a trading platform is used, the date and time the order is transmitted to the
trading platform;
(J) If a trading platform is used, the date and time the order is executed;
(K) The size and price at which the order is executed, or in the case of an option,
the amount of the premium paid for each option purchased, or the amount credited for
each option sold; and
(L) For options, whether the option is a put or call, the strike price, and expiration
date.
(ii) Account records that contain the following information:
(A) The funds in the account, net of any commissions and fees;
(B) The net profits and losses on open trades; and
(C) The funds in the account plus or minus the net profits and losses on open
trades. (In the case of open option positions, the account balance should be adjusted for
the net option value);
rice, and expiration
date.
(ii) Account records that contain the following information:
(A) The funds in the account, net of any commissions and fees;
(B) The net profits and losses on open trades; and
(C) The funds in the account plus or minus the net profits and losses on open
trades. (In the case of open option positions, the account balance should be adjusted for
the net option value);
(iii) If a trading platform is used, daily logs showing each price change on the
platform, the time of the change to the nearest second, and the trading volume at that time
and price; and
(iv) Any method or algorithm used to determine the bid or asked price for any
retail forex transaction or the prices at which customer orders are executed, including, but
not limited to, any premium and markups, fees, commissions or other items which affect
the profitability or risk of loss of a retail forex customer's transaction.
(b) Disclosure of retail forex transactions. No FDIC-supervised insured depository
institution engaging in retail forex transactions may disclose that an order of another
person is being held by the FDIC-supervised insured depository institution, unless the
disclosure is necessary to the effective execution of such order or the disclosure is made
at the request of the FDIC.
(c) Handling of retail forex accounts of related persons of retail forex
counterparties. No FDIC-supervised insured depository institution engaging in retail
forex transactions shall knowingly handle the retail forex account of any related person of
another retail forex counterparty unless it:
(1) Receives written authorization from a person designated by such other retail
forex counterparty with responsibility for the surveillance over such account pursuant to
paragraph (a)(2) of this section;
ed insured depository institution engaging in retail
forex transactions shall knowingly handle the retail forex account of any related person of
another retail forex counterparty unless it:
(1) Receives written authorization from a person designated by such other retail
forex counterparty with responsibility for the surveillance over such account pursuant to
paragraph (a)(2) of this section;
(2) Prepares immediately upon receipt of an order for such account a written
record of such order, including the account identification and order number, and records
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thereon to the nearest minute, by time-stamp or other timing device, the date and time the
order is received; and
(3) Transmits on a regular basis to such other retail forex counterparty copies of
all statements for such account and of all written records prepared upon the receipt of
orders for such account pursuant to paragraph (a)(2) of this section.
(d) Related person of FDIC-supervised insured depository institution establishing
account at another retail forex counterparty. No related person of an FDIC-supervised
insured depository institution engaging in retail forex transactions may have an account,
directly or indirectly, with another retail forex counterparty unless:
(1) It receives written authorization to maintain such an account from a person
designated by the FDIC-supervised insured depository institution of which it is a related
person with responsibility for the surveillance over such account pursuant to paragraph
(a)(2) of this section; and
(2) Copies of all statements for such account and of all written records prepared
by such other retail forex counterparty upon receipt of orders for such account pursuant to
paragraph (c)(2) of this section are transmitted on a regular basis to the retail forex
counterparty of which it is a related person.
r the surveillance over such account pursuant to paragraph
(a)(2) of this section; and
(2) Copies of all statements for such account and of all written records prepared
by such other retail forex counterparty upon receipt of orders for such account pursuant to
paragraph (c)(2) of this section are transmitted on a regular basis to the retail forex
counterparty of which it is a related person.
(e) Prohibited trading practices. No FDIC-supervised insured depository
institution engaging in retail forex transactions may:
(1) Enter into a retail forex transaction, to be executed pursuant to a market or
limit order at a price that is not at or near the price at which other retail forex customers,
during that same time period, have executed retail forex transactions with the FDIC-
supervised insured depository institution;
(2) Adjust or alter prices for a retail forex transaction after the transaction has
been confirmed to the retail forex customer;
(3) Provide a retail forex customer a new bid price for a retail forex transaction
that is higher than its previous bid without providing a new asked price that is also higher
than its previous asked price by a similar amount;
(4) Provide a retail forex customer a new bid price for a retail forex transaction
that is lower than its previous bid without providing a new asked price that is also lower
than its previous asked price by a similar amount; or
(5) Establish a new position for a retail forex customer (except one that offsets an
existing position for that retail forex customer) where the FDIC-supervised insured
depository institution holds outstanding orders of other retail forex customers for the
same currency pair at a comparable price.
§ 349.14 Supervision.
at is also lower
than its previous asked price by a similar amount; or
(5) Establish a new position for a retail forex customer (except one that offsets an
existing position for that retail forex customer) where the FDIC-supervised insured
depository institution holds outstanding orders of other retail forex customers for the
same currency pair at a comparable price.
§ 349.14 Supervision.
(a) Supervision by the FDIC-supervised insured depository institution. An FDIC-
supervised insured depository institution engaging in retail forex transactions shall
diligently supervise the handling by its officers, employees, and agents (or persons
occupying a similar status or performing a similar function) of all retail forex accounts
carried, operated, or advised by at the FDIC-supervised insured depository institution and
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all activities of its officers, employees, and agents (or persons occupying a similar status
or performing a similar function) relating to its retail forex business.
(b) Supervision by officers, employees, or agents. An officer, employee, or agent
of an FDIC-supervised insured depository institution must diligently supervise his or her
subordinates’ handling of all retail forex accounts at the FDIC-supervised insured
depository institution and all the subordinates’ activities relating to the FDIC-supervised
insured depository institution’s retail forex business.
§ 349.15 Notice of transfers.
or agents. An officer, employee, or agent
of an FDIC-supervised insured depository institution must diligently supervise his or her
subordinates’ handling of all retail forex accounts at the FDIC-supervised insured
depository institution and all the subordinates’ activities relating to the FDIC-supervised
insured depository institution’s retail forex business.
§ 349.15 Notice of transfers.
(a) Prior notice generally required. Except as provided in paragraph (b) of this
section, an FDIC-supervised insured depository institution must provide a retail forex
customer with 30 days’ prior notice of any assignment of any position or transfer of any
account of the retail forex customer. The notice must include a statement that the retail
forex customer is not required to accept the proposed assignment or transfer and may
direct the FDIC-supervised insured depository institution to liquidate the positions of the
retail forex customer or transfer the account to a retail forex counterparty of the retail
forex customer's selection.
(b) Exceptions. The requirements of paragraph (a) of this section shall not apply
to transfers:
(1) Requested by the retail forex customer;
(2) Made by the Federal Deposit Insurance Corporation as receiver or conservator
under the Federal Deposit Insurance Act; or
(3) Otherwise authorized by applicable law.
(c) Obligations of transferee FDIC-supervised insured depository institution. An
FDIC-supervised insured depository institution to which retail forex accounts or positions
are assigned or transferred under paragraph (a) of this section must provide to the
affected retail forex customers the risk disclosure statements and forms of
acknowledgment required by this part and receive the required signed acknowledgments
within 60 days of such assignments or transfers
itution. An
FDIC-supervised insured depository institution to which retail forex accounts or positions
are assigned or transferred under paragraph (a) of this section must provide to the
affected retail forex customers the risk disclosure statements and forms of
acknowledgment required by this part and receive the required signed acknowledgments
within 60 days of such assignments or transfers. This requirement shall not apply if the
FDIC-supervised insured depository institution has clear written evidence that the retail
forex customer has received and acknowledged receipt of the required disclosure
statements.
§ 349.16 Customer dispute resolution..
(a) Prohibition on predispute arbitration agreements. No FDIC-supervised insured
depository institution shall enter into any agreement with a retail forex customer in which
the parties agree to arbitrate any future dispute between them arising related to the
customer’s retail forex account.
(b) Election of forum. (1) Where the parties agree to arbitrate a dispute after it has
arisen, within ten business days of the agreement, the FDIC-supervised insured
depository institution must provide the customer with a list of persons qualified in dispute
resolution.
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37
(2) The customer shall, within 45 days after receipt of such list, notify the FDIC-
supervised insured depository institution of the person selected. The customer’s failure to
provide such notice shall give the FDIC-supervised insured depository institution the
right to select a person from the list.
h a list of persons qualified in dispute
resolution.
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37
(2) The customer shall, within 45 days after receipt of such list, notify the FDIC-
supervised insured depository institution of the person selected. The customer’s failure to
provide such notice shall give the FDIC-supervised insured depository institution the
right to select a person from the list.
(c) Counterclaims. An agreement to arbitrate a customer’s claim against an FDIC-
supervised insured depository institution after the claim has arisen may permit the
submission of a counterclaim in the arbitration by a person against whom a claim or
grievance is brought. Such a counterclaim may be permitted where it arises out of the
transaction or occurrence that is the subject of the customer’s claim or grievance and does
not require for adjudication the presence of essential witnesses, parties, or third persons
over which the settlement process lacks jurisdiction.
[THIS SIGNATURE PAGE RELATES TO THE PROPOSED RULE
TITLED “RETAIL FOREIGN EXCHANGE TRANSACTIONS”]
Dated at Washington, D.C., this __ of May 2011.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.