Source: https://www.federalregister.gov/documents/2013/04/09/2013-08163/retail-foreign-exchange-transactions-regulation-nn
Timestamp: 2017-05-27 01:00:01
Document Index: 445057298

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:: Retail Foreign Exchange Transactions (Regulation NN)
A Rule by the Federal Reserve System on 04/09/2013
21019-21035
https://www.federalregister.gov/d/2013-08163
The Board of Governors of the Federal Reserve System (“Board”) is adopting a final rule to permit banking organizations under its supervision to engage in off-exchange transactions in Start Printed Page 21020foreign currency with retail customers. The final rule also describes various requirements with which banking organizations must comply to conduct such transactions.
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 section 742(c)(2) of the Dodd-Frank Act,[2] the Commodity Exchange Act (CEA) provides that a United States financial institution [3] for which there is a Federal regulatory agency [4] shall not enter into, or offer to enter into, certain types of foreign exchange transactions described in section 2(c)(2)(B)(i)(I) of the CEA with a retail customer [5] 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 [6] (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] Retail forex rules 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.[9] The Board's rule applies to “banking institutions,” a term defined in section 240.2(b) to mean state member banks, uninsured state-licensed branches of foreign banks, financial holding companies, bank holding companies, savings and loan holding companies,[10] agreement corporations, and Edge Act corporations.
On September 10, 2010, the Commodity Futures Trading Commission (CFTC) adopted a retail forex rule for persons subject to its jurisdiction.[11] After studying and considering the CFTC's retail forex rule, and consulting with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), the Board approved for publication a notice of proposed rulemaking (NPR) for retail forex transactions effected by banking institutions on July 28, 2011. The NPR was published in the Federal Register on August 3, 2011,[12] and the comment period closed on October 11, 2011. In response to the NPR, the Board received six comments: three from individuals, one from a bank, and two from trade associations. One of the individual commenters did not address the rule, while another individual commenter expressed general support for the rule. The third individual (hereinafter “the individual commenter”) and the bank (hereinafter “the bank commenter”) generally supported the rule while requesting certain clarifications and changes. One trade association requested changes to reduce the burden on certain entities that would qualify as “retail forex customers” under the proposed regulation. The other trade association letter requested changes to address retail customers who use foreign exchange in connection with the purchase or sale of a security denominated in a foreign currency. These comments are addressed in the Section-by-Section Analysis below. The Board is adopting a final rule that is substantially the same as the proposed rule, with certain clarifications as discussed below.
The regulation also covers subsidiaries of banking institutions that are organized under the laws of the United States or a U.S. state, unless the subsidiary is subject to the jurisdiction of another federal regulatory agency that is authorized to prescribe retail forex rules under section 2(c)(2)(E) of the Commodity Exchange Act.[13] Subsidiaries of a banking institution that are organized under foreign law are not covered regardless of the nationality of the customer.
The definition of “retail forex transaction” generally includes the following transactions in foreign currency between a banking institution and a person that is not an eligible Start Printed Page 21021contract participant: [14] (i) A future or option on such a future; [15] (ii) options not traded on a registered national securities exchange; [16] and (iii) certain leveraged or margined transactions. This definition has several important features.
First, certain transactions in foreign currency are not “retail forex transactions,” and therefore are not subject to the prohibition in section 742(c)(2) of the Dodd-Frank Act. For example, a “spot” forex transaction where one currency is bought for another and the two currencies are exchanged within two days is not a “future” and would not meet the definition of a “retail forex transaction,” since actual delivery occurs as soon as practicable.[17] 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.[18] In addition, “retail forex transaction” does not include an “identified banking product” or a part of an “identified banking product,” as defined in section 401(b) of the Legal Certainty for Bank Product Act of 2000.[19] Finally, the definition does not include transactions executed on a securities exchange and banking institutions are ineligible to effect retail forex transactions on a designated contract market.
Second, the definition of “retail forex transaction” covers rolling spot forex transactions offered or entered into on a leveraged or margin basis (so-called Zelener [20] contracts), including without limitation such transactions traded on the Internet, through a mobile phone, or on an electronic platform. A rolling spot forex transaction normally requires delivery of currency within two days, like spot transactions. However, in practice, these contracts are indefinitely renewed every other day and no currency is actually delivered until one party affirmatively closes out the position.[21] Therefore, the contracts are economically more like futures than spot contracts, although some courts have held them to be spot contracts in form.[22] One of the trade association comment letters was submitted by the American Bankers Association and the Global Financial Markets Association's Global Foreign Exchange Division (hereinafter “the ABA/GFMA letter”). The comment letter sought clarification or relief that would result in the exemption of certain forex transactions by retail customers initiated solely for the purpose of completing a transaction in foreign securities. This comment letter was addressed to all of the federal regulatory agencies that have promulgated or proposed retail forex rules: the Board, CFTC, FDIC, OCC, and Securities and Exchange Commission. On July 18, 2012, the CFTC issued a final rule that included an interpretation regarding foreign exchange spot transactions that responded to the ABA/GFMA letter. Specifically, the CFTC defined a bona fide spot forex transaction to include the purchase or sale of an amount of foreign currency equal to the price of a foreign security where (i) the security and related foreign currency transactions are executed contemporaneously in order to effect delivery by the relevant securities settlement deadline, and (ii) actual delivery of the foreign currency occurs by such deadline. By interpreting the CEA to exclude these types of retail forex transactions effected in connection with securities purchases and sales, the CFTC has confirmed that the transactions are not subject to the provisions of the CEA that are referenced by section 742 of the Dodd-Frank Act. The Board believes that no amendment to the final rule is required to address this issue. The Board has also added a section to the final rule to clarify that the Board may modify the provisions of this rule for a specific retail forex transaction or a class of retail forex transactions if the Board determines that the modification is consistent with safety and soundness and protection of retail forex customers.
Section 240.2 defines several terms by reference to the CEA, including “eligible contract participant” (ECP). Foreign currency transactions with eligible contract participants are not considered retail forex transactions and are therefore not subject to this rule. The definition covers a variety of financial entities, governmental entities, certain businesses, and individuals that meet certain investment thresholds.[23] The comment letter filed by the Global Financial Markets Association's Global FX Division (hereinafter “the GFMA letter”) and the bank commenter stated their belief that the definition of “eligible contract participant” is too narrow and unnecessarily requires banking institutions to provide retail protections to sophisticated customers who fail to qualify as ECPs because they do not meet the $10 million asset threshold in the statutory definition. The trade association commenter and the bank commenter recommended that the definition of “retail forex customer” in section 240.2(n) carve out institutional non-ECPs represented by registered investment advisers. The trade association commenter also sought reduced burden for a commodity pool that is unable to prove that all of its participants are themselves ECPs. The GFMA letter also suggested that, if the Board does not exempt these entities from all aspects of the regulation, the Board at a minimum should allow what it calls “professional non-ECPs” to (1) Opt out of disclosure requirements, including the profitable accounts ratio described in section 240.6(e), (2) post reduced margin compared to retail customers, and (3) accommodate transaction execution flexibility not Start Printed Page 21022permissible under the proposed regulation.
The issue regarding the ECP status of commodity pools engaging in foreign exchange transactions was included in the CFTC's notice of proposed rulemaking regarding further definition of certain Dodd-Frank Act terms, including “eligible contract participant,” [24] and addressed in their final rule adopted April 6, 2012.[25] The CFTC's definition of ECP reduces the burden on commodity pools seeking to establish that all of their members are themselves ECPs. The Board is amending the definition of ECP in section 240.2 of the regulation to incorporate the CFTC's revised definition of ECP. This will allow banking institutions to use the same standard for ECP status as retail forex dealers subject to CFTC jurisdiction when dealing with commodity pools. Consistent with the provisions of the CEA and the CFTC's final rule, the Board is not adopting the commenters' suggestion that commodity pools be exempt from the statutory requirement of establishing that its members are themselves ECPs. The GFMA letter also sought clarification that a banking institution with a retail forex customer who later becomes an ECP may continue to treat the customer as a retail forex customer (i.e., as a non-ECP). The Board believes a banking institution may continue to comply with the regulation for such a customer. Indeed, a banking institution may apply the provisions of Regulation NN to transactions with any customer, although it is only required to apply the regulation to retail forex transactions with retail forex customers.
The Board's proposal used wording somewhat different from that used by the CFTC, OCC and FDIC. While the retail forex rules of other federal regulatory authorities state that a retail forex counterparty may not “cheat or defraud or attempt to cheat or defraud” any person, the Board's proposal used the phrase “defraud or attempt to defraud.” The individual commenter recommended using “cheat or defraud” instead of “defraud,” which he believes would promote regulatory consistency across regulators. The Board notes that the phrase “cheat or defraud” is used in section 6b of the CEA (“Contracts designed to defraud or mislead”) [26] and is amending its proposal to use the same language as the CEA and other regulators.
The Department of Justice's (DOJ's) US Attorneys' Manual discusses the difference between “knowingly” and “willfully” with respect to 18 U.S.C. 1001, the federal criminal code's general anti-fraud provision.[27] This discussion is consistent with a Supreme Court case concerning another provision of the criminal code.[28] Both the DOJ and the Court indicate that a “willful” violation requires proof that the defendant acted with knowledge that his or her conduct was unlawful, while a “knowing” violation requires knowledge of the facts constituting the offence, as distinguished from knowledge of the law. The Board believes that “knowingly” sets the more appropriate standard, as it will cover making a false report or deceptive behavior without requiring proof that the banking institution knew it was violating Regulation NN.
Although the statutory requirements with respect to futures and options contracts are currently in effect, some banking institutions may currently engage in retail forex transactions that would be covered by this rule, such as the so-called “Zelener contracts.” Banking institutions engaged in retail forex transactions as of the effective date of this rule who promptly notify the Board will have six months, or a longer period provided by the Board, to bring their operations into conformance with the rule. Under this rule, a banking institution that notifies the Board within 30 days of the effective date of the final retail forex rule, subject to an extension by the Board, and submits the information requested by the Board thereafter will be deemed to be operating its retail forex business pursuant to a rule or regulation of a Federal regulatory agency, as required under the Commodity Exchange Act, for such period.[29] A banking institution need not join a futures self-regulatory organization as a condition of conducting a retail forex business.Start Printed Page 21023
The final rules of the CFTC, OCC, and FDIC require retail forex dealers 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.[30] The individual commenter suggested that this “profitable accounts ratio” could be manipulated, although he did not describe how this could be done, and recommended adoption of an objective and uniform calculation methodology for the ratio. The commenter also recommended that the calculation should be weighted by the amount of profit or loss to show the amount of profitability or loss, rather than just whether any account made any profit. The Board believes a calculation of the amount of profitability would be more likely to cause retail customers to believe that past performance is an indication of future results and is retaining the profitable accounts ratio and statement of profitable trades as proposed. In addition, the Board believes a uniform calculation of profitable accounts and statement of profitable trades for all retail forex dealers affords greater retail consumer protection by allowing comparison across different types of dealers. Finally, the Board notes that section 240.7(b) provides a calculation methodology for the profitable accounts ratio that is uniform across the bank regulatory agencies.[31] As proposed, the risk disclosure must be provided as a separate document. The Board requested comment on whether banking institutions should be allowed to combine the retail forex risk disclosure with other disclosures that banking institutions make to their customers. The individual commenter supported the Board's proposal, which is consistent with the final rules adopted by the other bank regulatory agencies.
The Board's retail forex rule does not change the Board's regulations regarding capital. This section generally requires that a banking institution that offers or enters into retail forex transactions must be “well capitalized” as defined in the Board's Regulations H, Y and LL [32] or the banking institution must obtain an exemption from the Board. An uninsured state-licensed U.S. branch or agency of a foreign bank must apply the capital rules that are made applicable to it pursuant to section 225.2(r)(3) of the Board's Regulation Y.[33] An Edge corporation or agreement corporation must comply with the capital adequacy guidelines that are made applicable to an Edge corporation engaged in banking pursuant to section 211.12(c)(2) of the Board's Regulation K.[34] In addition, a banking institution must continue to hold capital against retail forex transactions as provided in the Board's regulations.
Paragraph (a) requires a banking institution that engages in retail forex transactions, in advance of any such transaction, to collect from the retail forex customer margin equal to at least two percent of the notional value of the Start Printed Page 21024retail forex transaction if the transaction is in a major currency pair, and at least five percent of the notional value of the retail forex transaction otherwise. These margin requirements are identical to the requirements imposed by the retail forex rules of the CFTC, OCC, and FDIC. A major currency pair is a currency pair with two major currencies. The major currencies specified in the regulation 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] as well as any other currency as determined by the Board.
Paragraph (e) prohibits a banking institution engaging in retail forex transactions from (1) Entering a retail forex transaction to be executed at a price that is not at or near prices at which other retail forex customers have executed materially similar transactions with the banking institution 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 Start Printed Page 21025price 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 banking institution holds one or more outstanding orders of other retail forex customers for the same currency pair at a comparable price.
This provision differs from the applicable CFTC and OCC dispute settlement procedures, which permit mandatory pre-dispute settlement agreements under certain conditions.[36] The Board proposed to prohibit a banking institution from entering into a pre-dispute settlement agreement with a retail forex customer, similar to the final rule adopted by the FDIC.
The Department of State has advised that transactions between the foreign branch or office of a banking institution and a U.S. customer could be cross-border transactions subject to the New York [37] and Panama Conventions.[38] These Conventions, implemented in the United States by chapters 2 and 3 of the Federal Arbitration Act (FAA),[39] create treaty obligations to enforce international commercial arbitration agreements and to recognize and enforce international commercial arbitral awards. The Board is amending section 240.16 to provide that it will not apply to transactions covered by chapters 2 or 3 of the FAA.
For banking institutions, the requirements in the Board's retail forex regulation overlap with applicable expectations contained in the Interagency Statement on Retail Sales of Nondeposit Investment Products (NDIP Policy Statement).[40] The NDIP Policy Statement sets out guidance regarding the Board's expectations when a banking institution 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 Board views retail forex transactions as nondeposit investment products, but the terms “retail forex customer” in this rule and “retail customer” in the NDIP Policy Statement are not necessarily co-extensive. The Board requested comment on whether the proposed regulation created issues concerning application of the NDIP policy statement to retail forex transactions that the Board should address. The Board received no comments on this issue. As the Board noted in its proposal, after the effective date of the final rule, the Board will expect banking institutions 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 Board's final retail forex rule.
Section 2(c)(2)(E) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(E)) Start Printed Page 21026prohibits a U.S. financial institution from conducting certain retail foreign exchange transactions unless done pursuant a rule or regulation of a Federal regulatory agency allowing such transactions. The Board is adopting a new regulation to allow banking institutions under its supervision to engage in retail foreign exchange transactions.
Under regulations issued by the Small Business Administration, a banking institution is considered a “small entity” if it has assets of $175 million or less.[41] As of June 30, 2012, there were approximately 368 small state member banks, 6 small Edge Act and agreement corporations, 48 small uninsured branches of foreign banks, 3,736 small bank holding companies, 213 small financial holding companies, and 229 small saving and loan holding companies. The Board is not aware of any small institutions engaged in retail forex transactions.
Abstract: The information collection requirements of the final rule are found in §§ 240.4-240.7, 240.9-240.10, 240.13, 240.15-240.16.
The reporting requirements in § 240.4 require that, prior to initiating a retail forex business, a banking institution provide the Board with prior notice. The notice must certify that the banking institution has written policies and procedures, and risk measurement and management systems in controls in place to ensure that retail forex transactions are conducted in a safe and sound manner. The banking institution must also provide other information required by the Board, such as documentation of customer due diligence, new product approvals, and haircuts applied to noncash margins. A banking institution already engaging in a retail forex business may continue to do so, provided it requests an extension of time.
Section 240.13(b) allows disclosure by a banking institution 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 Board. Section 240.13(c) prohibits a banking institution 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. Section 240.13(d) Start Printed Page 21027prohibits a related person of a banking institution 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.
The customer dispute resolution provisions in § 240.16 requires certain endorsements, acknowledgments, and signature language. It also requires that within 10 days after receipt of notice from the retail forex customer that they intend to submit a claim to arbitration, the banking institution will provide them with a list of persons qualified in the dispute resolution and that the customer must notify the banking institution of the person selected within 45 days of receipt of such list.
For the reasons stated in the preamble, the Board amends 12 CFR Chapter II by adding new part 240 to read as follows: Start Part
§ 240.1 Authority, purpose and scope.
§ 240.2 Definitions.
(4) A bank holding company (as defined in section 2 of the Bank Holding Company Act of 1956; 12 U.S.C. 1841);Start Printed Page 21028
§ 240.3 Prohibited transactions.
§ 240.4 Notification.
(a) Notification required. Before commencing a retail forex business, a Start Printed Page 21029banking institution shall provide the Board with prior written notice in compliance with this section. The notice will become effective 60 days after a complete notice is received by the Board, provided the Board does not request additional information or object in writing. In the event the Board requests additional information, the notice will become effective 60 days after all information requested by the Board is received by the Board unless the Board objects in writing.
§ 240.5 Application and closing out of offsetting long and short positions.
§ 240.6 Disclosure.
(2) Any electronic trading platform that you may use for retail foreign currency transactions with your banking institution is not a regulated exchange. It is an electronic connection for accessing your banking institution. The terms of availability of such a platform are governed only by your contract with your banking institution. Any trading platform that you may use to enter into off-exchange foreign currency transactions is only connected to your banking institution. You are accessing that trading platform only to transact with your banking institution. You are not trading with any other entities or customers of the banking institution by accessing such platform. The availability and operation of any such platform, including the consequences of the unavailability of the Start Printed Page 21030trading platform for any reason, is governed only by the terms of your account agreement with the banking institution.
§ 240.7 Recordkeeping.
(vii) The funds in the account plus or minus the net profits and losses on open trades, adjusted for the net option value in the case of open options positions;Start Printed Page 21031
(i) Account identification (account or customer name with which the retail forex transaction was effected);Start Printed Page 21032
§ 240.8 Capital requirements.
(b) Capital required for an uninsured state-licensed branch of a foreign bank. A banking institution defined in § 240.2(b)(2) offering or entering into retail forex transactions must be well-capitalized under the capital rules made applicable to it pursuant to § 225.2(r)(3) of Regulation Y (12 CFR 225.2(r)(3)).
(c) Capital required for financial holding companies and bank holding companies. A banking institution defined in § 240.2(b)(3) or (4) offering or entering into retail forex transactions must be well-capitalized as defined in § 225.2(r) of Regulation Y (12 CFR 225.2(r)).
(d) Capital required for savings and loan holding companies. A banking institution defined in § 240.2(b)(5) offering or entering into retail forex transactions must be well-capitalized as defined in § 238.2(s) of Regulation LL (12 CFR 238.2(s)).
(e) Capital required for an agreement corporation or Edge Act corporation. A banking institution defined in § 240.2(b)(6) or (7) offering or entering into retail forex transactions must maintain capital in compliance with the capital adequacy guidelines that are made applicable to an Edge corporation engaged in banking pursuant to § 211.12 (c)(2) of Regulation K (12 CFR 211.12(c)(2)).
§ 240.9 Margin requirements
(3) Determine whether, based on the marks in paragraphs (d)(1) and (d)(2) of Start Printed Page 21033this section, the banking institution has collected margin from the retail forex customer sufficient to satisfy the requirements of this section; and
§ 240.10 Required reporting to customers.
§ 240.11 Unlawful representations.
§ 240.12 Authorization to trade.
(b) A retail forex transaction is “specifically authorized” for purposes Start Printed Page 21034of this section if the retail forex customer specifies:
§ 240.13 Trading and operational standards.
§ 240.14 Supervision.
§ 240.15 Notice of transfers.
(b) Exceptions. The requirements of paragraph (a) of this section shall not apply to transfers:Start Printed Page 21035
§ 240.16 Customer dispute resolution.
§ 240.17 Reservation of authority.
Margaret McCloskey Shanks, Deputy Secretary of the Board.
Dodd-Frank Act § 742(c)(2) (codified at 7 U.S.C. 2(c)(2)(E) (2011).
The CEA defines “financial institution” to include an agreement corporation, an Edge Act corporation, a depository institution (as defined in section 3 of the Federal Deposit Insurance Act), a financial holding company (as defined in section 2 of the Bank Holding Company Act of 1956), a trust company, or “a similarly regulated subsidiary or affiliate of an entity” described above. 7 U.S.C. 1a(21).
For purposes of the retail forex rules, “Federal regulatory agency” includes “an appropriate Federal banking agency.” 7 U.S.C. 2(c)(2)(E)(i)(III). The Board is an “appropriate Federal banking agency” under the CEA. 7 U.S.C. 1a(2).
A retail customer is a person who is not an “eligible contract participant” under the CEA. See, 7 U.S.C. 1a(18).
The Board's proposed rule did not explicitly cover savings and loan holding companies (SLHCs). They have been added to the regulation to reflect the transfer to the Board of regulatory responsibility for SLHCs on July 21, 2011.
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).
76 FR 46652 (August 3, 2011).
7 U.S.C. 2(c)(2)(E). The federal regulatory authorities other than the Board are the CFTC, OCC, FDIC, the Securities and Exchange Commission, the National Credit Union Association, and the Farm Credit Administration.
The definition of “eligible contract participant” is found in section 1a(18) of the CEA and is discussed below.
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).
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).
7 U.S.C. 27(b).
CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004); see also CFTC v. Erskine, 512 F.3rd 309 (6th Cir. 2008).
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, 869 (7th Cir. 2004).
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).
The term “eligible contract participant” is defined at 7 U.S.C. 1a(18) and generally requires a corporation, partnership, proprietorship, organization, trust or other entity to have total assets exceeding $10 million and an individual to have more than $10 million in assets invested on a discretionary basis.
Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant” `and “Eligible Contract Participant,” 75 FR 80174 (December 21, 2010)(joint proposed rule with the SEC).
77 FR 30596 (May 23, 2012).
7 U.S.C. 6b
United States Attorneys' Manual, Chapter 9.
Bryan v. United States, 524 U.S. 184 (1998).
17 CFR 5.5(e)(1), 12 CFR 48.6(e)(1), and 12 CFR 349.6(e)(1).
See, 12 CFR 48.7(b) and 12 CFR 349.7(b).
12 CFR 208.43, 12 CFR 225.2(r), and 12 CFR 238.2(s).
12 CFR 225.2(r)(3).
12 CFR 211.12(c)(2).
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).
See 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.
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1970).
Inter-American Convention on International Commercial Arbitration (1990).
9 U.S.C. 1 et seq. Chapter 2 of the FAA (secs. 201-208) contains provisions implementing the New York Convention, while Chapter 3 of the FAA (secs. 301—307) contains provisions implementing the Panama Convention.
See SR Letter 94-11 (Feb. 17, 1994); see also SR Letter 95-46 (Sept. 14, 1995).
U.S. Small Business Administration, Table of Small Business Size Matched to North American Industry Classification System Codes, 13 CFR 121.201.