Gain Capital (Forex.com) warns US clients
The Forex.com message apparently stems from Forex.com’s interpretation of some of the Dodd-Frank rules which prohibit “…a transaction in any commodity with a person that is not an eligible contract participant or an eligible commercial entity, on a leveraged or margined basis.”
It is unclear whether or not the other NFA-licensed US firms will follow suit in their understanding of the rule, and also shut down precious metals trading for US retail clients next month. If so, all that will be left to trade for US clients of these firms are “pure” Forex pairs, as US clients are already precluded from trading CFDs such as stock indices and individual stocks – the US Securities and Exchange Commission (SEC) has a longstanding rule which prohibits over-the-counter trading in instruments which directly mimic the price of an underlying security which is listed on a recognized exchange.
While “non-Forex” instruments have traditionally represented less than 10% of Forex firms’ trading volumes, the number has risen recently, mainly due to Gold’s long rally and the high level of volatility in Silver prices the past few months.
It is not inconceivable that in the future even “plain” over-the-counter Forex pairs trading might be disallowed in the US, if Forex pairs become listed on an exchange.
These changes, in our view, have not caught the US-based Forex firms off guard. Over the past several months some of the leading US Forex firms have clearly been preparing for a shrinking (or potentially the entire disappearance) of their home market, by making aggressive strides to expand internationally, for example FXCM’s March 2011 acquisition of CGI Capital Japan for $27 million. (For an expanded list of M&A and financing transactions in the Forex sector from 2005-present see our Online Forex Industry Report). As we reported last month, Asia now represents the largest retail market for both FXCM (42% of volume in Q1) and Gain Capital (48% – and that for a firm which until recently did more than half of its entire volume in the US!). Other firms, such as Oanda and MB Trading, have gone through the FSA registration process in the UK, to provide a basis for expansion in Europe.
Gain Capital (Forex.com) warns US clients Conclusion
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