Commodity Futures Trading Commission 

 Office of Public Affairs 

 Three Lafayette Centre 

 1155 21st Street, NW 

 Washington, DC 20581 

 www.cftc.gov

Q & A – Final Retail Foreign Exchange Rules 

What is a “retail forex transaction”? 

A retail forex transaction is one between an eligible counterparty and a retail customer. Generally, retail customers are: 

• Individuals with less than $10 million in total assets, or less than $5 million in total assets if entering into the 

transaction to manage risk, and who are not registered as futures or securities professionals; 

• Companies, other than financial institutions and investment companies, with less than $10 million in total assets, or a 

net worth less than $1 million if entering into the transaction in connection with the conduct of their businesses; and 

• Commodity pools that have less than $5 million in total assets. 

Where can I find the text of the rules? 

The Commission’s regulations governing retail foreign exchange transactions were published at 75 Fed. Reg. 55409 (Sept. 10, 

2010), and they became effective on October 18, 2010. They are accessible through the Commission’s website. 

How do the CFTC Reauthorization Act and Dodd-Frank Act affect the way retail forex transactions 

are regulated? 

Prior to the passage of the CFTC Reauthorization Act of 2008 (CRA), which modifies the Commodity Exchange Act (CEA), 

the CEA required that, in order to offer to serve as a counterparty to a retail forex transaction, an entity had to be one of 

several regulated entities, such as a financial institution, an SEC-registered broker or dealer, an insurance company, a financial 

holding company, an investment bank or a CFTC-registered futures commission merchant (FCM). While the CFTC had the 

authority to pursue fraud actions against CFTC registrants and those forex entities that were not otherwise regulated, it had no 

statutory authority to write rules governing the activity. 

The CRA amended the CEA and provided the Commission with authority to write and enforce the rules and regulations 

necessary to effectuate any of the provisions of the Act in connection with off-exchange retail foreign currency futures, 

options, and options on futures, as well as leveraged off-exchange forex contracts offered to or entered into with retail 

customers. The CFTC was also given authority to write and enforce rules regarding registration of those who solicit, exercise 

discretionary trading authority or operate (or solicit funds for) pools in connection with any of these types of transactions. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010, further modified the CEA in a 

number of ways. It requires that all off-exchange retail foreign currency transactions be done pursuant to the rules of a Federal 

regulatory agency. It also requires that unless Federal regulators prepare rules regarding off-exchange retail forex transactions 

within specified time periods, the transactions are prohibited. If any Federal regulatory agency had already proposed such rules 

prior to the enactment of the Dodd-Frank Act – as had the CFTC – the agency has 90 days following enactment to adopt final 

rules, or the same prohibition takes effect. 

The Dodd-Frank Act directs Federal regulators to prescribe appropriate requirements with respect to: 

• Disclosure; 

• Recordkeeping; 

• Capital and margin; 

• Reporting; 

Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 
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Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

• Business conduct; 

• Documentation; and 

• Such other standards or requirements as the Federal regulatory agency shall determine to be necessary. 

For the CFTC, the Dodd-Frank Act reconfirms the Commission’s authority to regulate off-exchange retail forex transactions 

and establishes a date – October 19, 2010 – by which final rules must be in place. For other Federal regulators whose 

regulatees are expressly permitted to serve as counterparties (such as United States financial institutions and broker dealers), it 

requires the preparation of similar rules or such transactions by their regulatees are prohibited. 

Who can offer off-exchange forex transactions to retail customers? 

Prior to the passage of the CRA, the CEA required that, to offer to serve as a counterparty to an off-exchange retail forex 

transaction, an entity had to be one of several regulated entities, such as: 

• Financial institutions, 

• SEC-registered brokers or dealers (or their affiliates), 

• Insurance companies, 

• Financial holding companies, 

• Investment bank holding companies, or 

• CFTC-registered FCMs (or their affiliates). 

The CRA retained this “regulated entity” requirement with one significant addition: retail foreign exchange dealers (RFEDs) – 

were added to the list of entities permitted to serve as counterparties. RFEDs are a new category of CFTC-registered entity 

created by the CRA. 

The Dodd-Frank Act further modifies the list of eligible counterparties by eliminating insurance companies and investment 

bank holding companies. Moreover, where the list of eligible counterparties previously included “financial institutions,” the 

Dodd-Frank Act specifically provides that among financial institutions, only United States financial institutions are permitted

to act as counterparties. 

What is the scope of the CFTC’s jurisdiction with regard to off-exchange forex transactions? 

While the CEA permits several types of entities to act as counterparties to retail forex transactions, the question of who 

regulates the activity depends on the type of entity offering to be the counterparty. For example, SEC-registered brokers or 

dealers doing retail forex transactions are regulated by the SEC and financial institutions are regulated by banking regulators. 

The CEA provides that the CFTC has jurisdiction over FCMs, RFEDs, or entities that are not otherwise regulated. 

None of the provisions of the CRA affect forex futures or options traded on exchanges, so trading of foreign currency futures 

and options on organized exchanges continues to be permitted under existing rules. Similarly, transactions entered into by 

sophisticated parties (i.e., transactions on the inter-bank market), or conducted through foreign exchange windows (where 

customers exchange one currency for another) are unaffected by the provisions of the CRA. 

What do the rules require? 

Following the CRA’s and Dodd-Frank Act’s mandates, the CFTC has adopted final rules applicable to off-exchange retail 

forex transactions and the entities that offer, solicit, provide advice regarding, or operate pools involving such transactions. 

The final rules are based, in large part, on the CFTC’s existing regulations for commodity interest transactions and commodity 

interest intermediaries, as well as rules of the National Futures Association (NFA) that are already in effect with respect to 

retail forex transactions offered by NFA’s members. Broadly speaking, the final rules require: 

• Registration of various parties engaging in retail forex business, 

• Distribution of disclosure documents to customers and potential customers regarding risk and potential conflicts of 

interest, 
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Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

• Making and keeping of various records, 

• Maintenance of prescribed minimum amounts of capital, and 

• Trading and operational standards. 

Who has to register under the new regulations? 

Entities that wish to serve as counterparties to off-exchange retail forex transactions – and that are not among the otherwise 

regulated entities enumerated in the CEA – will have to register with the CFTC either as FCMs or RFEDs. 

• Those that wish to engage in retail forex transactions, but would be primarily or substantially involved in on-exchange 

business, will be required to register as FCMs. 

• Those that will serve primarily as retail forex counterparties are required to register as RFEDs. 

Additionally, for the first time, entities other than RFEDs and FCMs that intermediate retail forex transactions will be required 

to register with the CFTC, as applicable, as introducing brokers (IBs), commodity trading advisors (CTAs), commodity pool 

operators (CPOs) or associated persons (APs) of such entities. 

What are the financial requirements and to whom do they apply? 

The new rules implement the $20 million minimum net capital standard established in the CRA for those registering as 

RFEDs or offering retail forex transactions as FCMs. The capital requirement includes an additional volume-based minimum 

capital amount calculated on the amount an FCM or RFED owes as counterparty to retail forex transactions. 

Do the new rules have a leverage requirement? 

The proposed rules included a requirement that FCMs and RFEDs serving as counterparties in off-exchange forex 

transactions collect from retail customers a security deposit of 10 percent of the notional value of the transaction. This 

requirement has often been referred to as a “10 to 1 leverage” requirement. 

The leverage requirement in the proposed rule has been replaced in the final rules with a mechanism whereby the Commission 

sets parameters (the release specifies a minimum 2 percent security deposit in the case of major currencies and 5 percent of the 

notional value of the transaction for all other currencies) and the Commission periodically reviews the appropriateness of 

those parameters. NFA is authorized to set specific security deposit levels within those parameters, and is required to review 

periodically and adjust as necessary both the particular security deposit levels and the designation of which currencies are 

“major” currencies, in light of such factors as changes in volatility. 

Are there other areas where the final rules are significantly different from the proposed rules? 

The other major difference between the proposed rules and the final rules concerns IBs. The proposed rules included a 

requirement that a person who registers as an IB to introduce retail forex accounts must be guaranteed by a registered FCM or 

RFED (and that the IB could be guaranteed by only one FCM or RFED). This proposal has been replaced in the final rules 

with the same requirement that currently applies to IBs who introduce futures and commodity interest accounts. Thus, a forex 

IB may choose either to meet the minimum net capital requirements applicable to futures and commodity options IBs, or to 

enter into a guarantee agreement with an FCM or an RFED.