Dodd-Frank Establishes New Laws Regarding Spot Commodities and Spot Forex
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”) has changed a number of laws in all of the securities acts including the Commodity Exchange Act. Two specific changes deal with the certain transactions in commodities on the spot market. Specifically, Section 742 of the Act deals with retail commodity transactions. In this section, the text of the Commodity Exchange Act is amended to include new Section 2(c)(2)(D) (dealing with retail commodity transactions) and new Section 2(c)(2)(E) (prohibiting trading in spot forex with retail investors unless the trader is subject to regulations by a Federal regulatory agency, i.e. CFTC, SEC, etc.). According to a congressional rulemaking spreadsheet, these are effective 180 days from the date of enactment.
We provide an overview of the new sections and have reprinted them in full below.
New CEA Section 2(c)(2)(D) - Concerning Spot Commodities (Metals)
The central import of new CEA Section 2(c)(2)(D) is to broadening the CFTC’s power with respect to retail commodity transactions. Essentially andy spot commodities transaction (i.e. spot metals) will be subject to CFTC jurisdiction and rulemaking authority. There is an exemption for commodities which are actually delivered within 28 days. While the CFTC wanted an exemption in which commodities would need to be delivered within 2 days, various coin collectors were able to lobby congress for a longer delivery period (see here).
It is likely we will see the CFTC propose regulations under this new section and we will keep you updated on any regulatory pronouncements with respect to this new section.
New CEA Section 2(c)(2)(E) - Concerning Spot Forex
The central import of new CEA Section 2(c)(2)(E) is to regulate the spot forex markets. While the section requires the CFTC to finalize regulations with respect to spot forex (which were proposed earlier in January), it also, interestingly, provides oversight of the markets to other federal regulatory agencies such as the CFTC. This means that in the future different market participants may be subject to different regulatory regimes with respect to trading in same underlying instrument. A Wall Street Journal article discusses the impact of this with respect to firms which engage in other activities in addition to retail forex transactions. The CFTC’s proposed rules establish certain compliance parameters for retail forex transactions, requires registration of retail forex managers and requires such managers to pass a new regulatory exam called the Series 34 exam
Related Articles:
- Commodity Position Limits After Dodd-Frank
- Commodity Position Limits After Dodd-Frank
- The FOREX Spot Trade
- FOREX 101: The Spot Rate
- Juris-my-diction Issues in Forex Regulation
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