Document ID: SEC-2016-0912-0001
Agency: sec
Document Type: Rule
Title: Retail Foreign Exchange Transactions
Posted Date: 2016-05-26T04:00Z

[Federal Register Volume 81, Number 102 (Thursday, May 26, 2016)]
[Rules and Regulations]
[Pages 33374-33375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12390]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

RIN 3235-AL19
[Release No. 34-77874; File No. S7-30-11]

Retail Foreign Exchange Transactions

AGENCY: Securities and Exchange Commission.

ACTION: Expiration of regulation.

-----------------------------------------------------------------------

SUMMARY: Rule 15b12-1, by its terms, will expire and no longer be 
effective on July 31, 2016. Interested persons should be aware that as 
of that date, any broker or dealer, including a broker or dealer that 
is also dually registered as a futures commission merchant (``BD/
FCM''), shall be prohibited under the Commodity Exchange Act (``CEA'') 
from offering or entering into a transaction described in the CEA with 
a person who is not an eligible contract participant (``retail forex 
transaction'').

DATES: May 26, 2016.

FOR FURTHER INFORMATION CONTACT: Paula Jenson, Deputy Chief Counsel; 
Catherine Moore, Senior Special Counsel; or Stephen J. Benham, Special 
Counsel, at (202) 551-5550 or Division of Trading and Markets, 
Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-7010.

SUPPLEMENTARY INFORMATION: Section 2(c)(2)(E) of the CEA, as added by 
the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides 
that a person for which there is a Federal regulatory agency, including 
a broker-dealer registered under Section 15(b) (except pursuant to 
paragraph (11) thereof) or 15C of the Securities and Exchange Act of 
1934 (``Exchange Act''), shall not enter into or offer to enter into a 
retail forex transaction, 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 prescribe.\1\
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 2(c)(2)(E).
---------------------------------------------------------------------------

    Section 2(c)(2)(E) of the CEA took effect on July 16, 2011. As of 
that date, broker-dealers, including broker-dealers also registered 
with the Commodity Futures Trading Commission as futures commission 
merchants, for which the Commission is the federal regulatory agency 
could no longer engage in retail forex transactions except pursuant to 
a rule adopted by the Commission.\2\
---------------------------------------------------------------------------

    \2\ See 7 U.S.C. 2(c)(2)(B)(i)(II)(cc) and 2(c)(2)(E). Congress 
expressly excludes from the CFTC's jurisdiction retail forex 
transactions where the counterparty, or the person offering to be 
the counterparty, is a broker or dealer registered under Section 
15(b) (other than paragraph (11) thereof) or 15C of the Exchange 
Act.
---------------------------------------------------------------------------

    A retail forex transaction 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 Exchange 
Act) that is offered to, or entered into with, a person that is not an 
eligible contract participant as defined in section 1(a)(18) of the 
CEA.\3\ Certain foreign exchange transactions are not ``retail forex 
transactions'' under the CEA, even where one of the counterparties is a 
person that is not an eligible contract participant. These transactions 
include: \4\ (i) ``spot forex transactions'' where one currency is 
bought for another and the two currencies are exchanged within two 
days; \5\ (ii) forward contracts that create an enforceable obligation 
to make or take delivery, provided that each counterparty has the 
ability to deliver and accept delivery in connection with its line of 
business; and (iii) options that are executed or traded on a national 
securities exchange registered pursuant to section 6(a) of the Exchange 
Act.
---------------------------------------------------------------------------

    \3\ 7 U.S.C. 2(c)(2)(B)(i)(I).
    \4\ See, generally, the discussion in Exchange Act Release No. 
69964 (Jul. 11, 2013), 78 FR 42439 (Jul. 16, 2013) at 42439-40.
    \5\ In August 2012, the CFTC issued an interpretation in a joint 
rulemaking with the Commission that ``conversion trades''--trades in 
which a foreign exchange transaction facilitates the settlement of a 
foreign security transaction--are spot transactions and, therefore, 
are not subject to the prohibition under the CEA. See Exchange Act 
Release No. 67453 (Jul. 18, 2012), 77 FR 48207 (Aug. 13, 2012).
---------------------------------------------------------------------------

    The term ``eligible contract participant'' is defined in Section 
1a(18) of the CEA and, in general terms, comprises certain enumerated 
regulated persons, entities that meet a specified total asset test or 
an alternative monetary test coupled with a nonmonetary component, 
certain employee benefit plans, and certain government entities and 
individuals that meet defined thresholds.\6\ An

[[Page 33375]]

individual is an eligible contract participant if the individual has 
aggregate amounts invested on a discretionary basis of more than $10 
million or more than $5 million if such individual enters into the 
transaction to manage the risk associated with an asset owned or 
liability incurred, or reasonably likely to be owned or incurred by 
such individual.\7\
---------------------------------------------------------------------------

    \6\ See 7 U.S.C. 1a(18). The Commission and the CFTC adopted 
rules under the CEA that further define ``eligible contract 
participant'' with respect to transactions with major swap 
participants, swap dealers, major security-based swap participants, 
security-based swap dealers, and commodity pools. See Exchange Act 
Release No. 66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012).
    \7\ 7 U.S.C. 1a(18)(A)(xi).
---------------------------------------------------------------------------

    The Commission adopted Rule 15b12-1 (17 CFR 240.15b12-1) on a time-
limited basis to permit a registered broker-dealer to engage in a 
retail forex business.\8\ The Commission is taking no further action, 
and pursuant to Rule 15b12-1(d), Rule 15b12-1 will expire and no longer 
be effective on July 31, 2016. Upon expiration of the rule on July 31, 
2016, a broker-dealer registered pursuant to Section 15(b) of the 
Exchange Act, including an entity that is registered as both a broker-
dealer and a futures commission merchant, shall be prohibited from 
offering or entering into a retail forex transaction pursuant to 
Section 2(c)(2)(E) of the CEA.
---------------------------------------------------------------------------

    \8\ See Exchange Act Release No. 69964 (Jul. 11, 2013), 77 FR 
42439 (Jul. 16, 2013). By its terms, Rule 15b12-1 expires on July 
31, 2016. The Commission previously adopted Rule 15b12-1 as an 
interim final temporary rule, and extended it once on July 11, 2012. 
See Exchange Act Release Nos. 64874 (Jul. 13, 2011), 76 FR 41676 
(Jul. 15, 2011) and 67405 (Jul. 11, 2012), 77 FR 41671 (Jul. 16, 
2012).

---------------------------------------------------------------------------
    By the Commission.

    Dated: May 20, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016-12390 Filed 5-25-16; 8:45 am]
 BILLING CODE 8011-01-P