We at FastBrokers.com recently submitted comments to the Secretary of the Commodity Futures Trading Commission (CFTC) on the proposed regulation of forex transactions and intermediaries RIN 3038-AC61.
We believe that the approval of this proposal would strongly affect the way Introducing Brokers (IB’s) operate. It is clear that CFTC wishes to create a unique link of compliance responsibility between the IB and the FCM/RFED carrying the introduced accounts. It also plans to require any IB to be guaranteed by the FCM or RFED to which they introduce accounts. As envisioned by CFTC, an IB wouldn’t be subject to capital requirement, but would have to operate pursuant to a guarantee agreement. Moreover, it would also be restricted to being a party to not more than one agreement.
We think that the Commission doesn’t clarify the effects of proposed regulation on the category of Independent Introducing Brokers (IIB). Due to their registration status, these companies are already authorized to operate under multiple clearing agreements with different FCMs and/or FDMs. Restricting their freedom to do business would be incongruous with existing rules applied to futures IBs. As many other firms, we soon might be forced either to downsize and become guaranteed IBs, or to forsake forex products in order to save our IIB status. Whatever our choice may be, we’ll have to terminate existing business relations and will immediately lose customers and income.
The latest available data show that 578 firms were registered as IIBs on October 1, 2009. Most of them offer retail forex. If the proposed regulation is approved without addressing the IIBs unique needs, all companies currently catering to the forex clientele will have to choose the lesser of the two evils mentioned above, the option that’s likely to damage them less. This seems very unfair. FastBrokers and all IIBs should be able to maintain multiple clearing partners including FCMs and RFEDs, and not be compelled to limit their already highly-regulated business activities. The main reason why this is unnecessary – besides being damaging to our customers’ best interests and our business – is that CFTC itself justified the proposed measure as a means to a precise end, namely subjecting off-exchange retail forex firms to compliance procedures and audits. Actually, as the Commission is aware, IIBs already fulfill higher compliance responsibilities than GIBs, and also meet stringent capital requirements and supervise their own sales team. Furthermore, the necessity of dealing only with guaranteed IBs would consistently increase the workload of FCM/RFEID compliance officers, who’d regularly visit and audit their remotely located GIBs to approve new or modified sales documents, marketing campaign projects, etc. This daunting task will inevitably make FCMs and RFEIDs very reluctant to accept more than a few well-known GIBs, making it nearly impossible for smaller firms to grow their business in open competition with established companies.
An NFA member registered with CFTC since inception, FastBrokers currently has a customer base spread over 70 different countries. Traders know perfectly well that they can open accounts directly with FCMs. We believe that the main reason behind our success is our ability to identify the best counterpart for each customer, and to select a range of high-quality offers that meet the unique needs of each investor. What would the future hold for guaranteed IBs obliged to sell a single set of products? Many potential clients would find us worthless, if made unable to offer independent advice. Prohibiting IBBs from doing what they do best would seriously hurt the growth of the entire sector, as well as restrict the range of services available to the general public.
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