Statement of Chairman Timothy Massad on Enhancing Protections for Retail Forex Customers

August 27, 2015

I support the approval of these National Futures Association rules pertaining to off-exchange retail foreign currency transactions. These rule amendments and new interpretive notice will provide important additional protections for the customers of retail foreign exchange dealers and will require greater risk management on the part of the dealers themselves.

The losses that many customers and dealers incurred in connection with the unpegging of the Swiss franc last January were a stark reminder of the risks of these markets. Under existing law, customers of retail foreign exchange dealers do not have the same protections as customers in the futures markets. For example, off-exchange retail foreign currency transactions are not subject to centralized clearing requirements. In addition, the law does not require retail foreign exchange dealers to hold customer funds in accounts that are segregated from the dealer's own assets, nor does the law provide special protections to customers in the event of the dealer's bankruptcy. Nevertheless, the NFA has taken important steps within the framework of existing law to address many issues.

These changes will increase transparency by improving the disclosure that each dealer must make to its customers about the risks of engaging in off-exchange foreign currency trading and the dealer itself. They will also strengthen dealers' minimum capital requirements and require much more robust risk management practices. Among other things, these changes will enhance the overall financial condition of retail foreign exchange dealers by requiring them to collect security deposits from eligible contract participant counterparties in addition to retail customer counterparties, and by prohibiting retail foreign exchange dealers from acting as counterparties to other dealers, including foreign dealers, if such other dealers do not collect appropriate security deposits from their respective counterparties.

These rules are a continuation of the work the Commission and the NFA did earlier this year, when our respective staffs worked together to respond to issues that arose after the unexpected extreme volatility in the foreign exchange markets. We will continue to monitor these markets as well as consider whether there are additional steps that would be appropriate to advance the goals of customer protection and market integrity.

Last Updated: August 27, 2015