Forex Registration


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Forex registration will be required soon for forex managers. This presentation discusses the forex registration requirements and process.

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  • Cpos and ctas
  • Forex Registration

    1. 1. For an audio version of this presentation, please go to Forex Registration How to Register as a Forex CTA, Forex CPO and Forex IB By Bart Mallon, Esq.
    2. 2. Overview <ul><li>Definition of Forex </li></ul><ul><li>Background & Jurisdiction </li></ul><ul><li>Regulatory Regime </li></ul><ul><li>Registration Requirements </li></ul><ul><li>Series 3 Exam </li></ul><ul><li>Series 34 Exam </li></ul><ul><li>Forex Disclosure Documents </li></ul><ul><li>Forex IB Requirements </li></ul><ul><li>Timeline </li></ul><ul><li>Compliance Rules </li></ul><ul><li>Questions </li></ul><ul><li>Disclaimer </li></ul>© Page 1 of13
    3. 3. Definition of Forex <ul><li>Forex </li></ul><ul><ul><li>Spot Forex </li></ul></ul><ul><ul><li>Leveraged off-exchange foreign currency transactions where one party is a retail customer </li></ul></ul><ul><ul><ul><li>Does not include transactions that result in actual delivery within two days or that create an enforceable obligation to deliver between parties who are capable of making and taking delivery for business purposes. </li></ul></ul></ul>© Page 2 of13
    4. 4. Background & Jurisdiction <ul><li>Commodities Exchange Act </li></ul><ul><ul><li>Regulation of commodities and futures trading </li></ul></ul><ul><ul><li>Created CFTC </li></ul></ul><ul><ul><li>No previous regulation of Forex activities (except limited anti-fraud authority) </li></ul></ul><ul><li>Farm Bill </li></ul><ul><ul><li>Passed by Congress on May 22, 2008 </li></ul></ul><ul><ul><li>Major items with regard to off-exchange forex </li></ul></ul><ul><ul><ul><li>Codifies CFTC’s anti-fraud authority </li></ul></ul></ul><ul><ul><ul><li>Requires registration for Forex CTAs, CPOs, IBs </li></ul></ul></ul><ul><ul><ul><li>Minimum capital requirements for FCMs and FDMs </li></ul></ul></ul><ul><li>New Forex Rules </li></ul><ul><ul><li>To be proposed by CFTC </li></ul></ul><ul><ul><li>Subject to comment period </li></ul></ul>© Page 3 of13
    5. 5. Regulatory Regime <ul><li>CFTC – Commodities Futures Trading Commission </li></ul><ul><ul><li>Federal Agency </li></ul></ul><ul><ul><li>Promulgates rules under CEA </li></ul></ul><ul><ul><li>Registration is with the CFTC </li></ul></ul><ul><li>NFA – National Futures Association </li></ul><ul><ul><li>Self Regulatory Organization (SRO) </li></ul></ul><ul><ul><li>Member Organization </li></ul></ul><ul><ul><li>Bylaws and NFA Rules </li></ul></ul><ul><li>State Regulation? </li></ul>© Page 4 of13
    6. 6. Registration Requirements <ul><li>Registration Type </li></ul><ul><ul><li>Firm </li></ul></ul><ul><ul><ul><li>Forex CTA, Forex CPO, Forex Introducing Broker, Forex Dealer Member </li></ul></ul></ul><ul><ul><li>Individual </li></ul></ul><ul><ul><ul><li>Forex Associated Person (AP), Forex Principal </li></ul></ul></ul><ul><li>Applications </li></ul><ul><ul><li>Completed electronically through NFA registration system </li></ul></ul><ul><ul><li>Firm </li></ul></ul><ul><ul><ul><li>Form 7-R (basic disclosure) </li></ul></ul></ul><ul><ul><ul><li>$200 application fee; $750 NFA membership fee </li></ul></ul></ul><ul><ul><li>Individual </li></ul></ul><ul><ul><ul><li>Proficiency Exams – Series 3 and Series 34 </li></ul></ul></ul><ul><ul><ul><ul><li>Potential Grandfather provision for Series 3 registered APs as of May 22, 2008 </li></ul></ul></ul></ul><ul><ul><ul><li>Fingerprints Cards – sent to FBI for processing </li></ul></ul></ul><ul><ul><ul><li>Form 8-R (basic disclosure plus criminal or regulatory background info) </li></ul></ul></ul><ul><ul><ul><li>$85 application fee </li></ul></ul></ul><ul><li>Additional Information </li></ul><ul><ul><li>CTA and CPO – Disclosure Documents </li></ul></ul><ul><ul><li>Forex IB – Form 1-FR-IB </li></ul></ul>© Page 5 of13
    7. 7. Series 3 Exam <ul><li>Exam overview </li></ul><ul><ul><li>Number of Questions: 120 True/False and Multiple Choice </li></ul></ul><ul><ul><li>Time: 2 hours 30 minutes </li></ul></ul><ul><ul><li>Passing Score: 70% for each part </li></ul></ul><ul><ul><li>Subject Matter: (part 1) Market knowledge and (part 2) U.S. regulations </li></ul></ul><ul><ul><li>Cost: $105 </li></ul></ul><ul><li>Exam Sections </li></ul><ul><ul><li>Part 1 – Futures Market Knowledge </li></ul></ul><ul><ul><ul><li>Theory, Terminology, Basic Functions </li></ul></ul></ul><ul><ul><ul><li>Margins, Premiums, Settlement, Delivery, Exercise </li></ul></ul></ul><ul><ul><ul><li>Orders, Customer Accounts </li></ul></ul></ul><ul><ul><ul><li>Hedging, Spreading, Speculating </li></ul></ul></ul><ul><ul><li>Part 2 – U.S. Regulations </li></ul></ul><ul><ul><ul><li>General NFA and CFTC Rules and Regulations </li></ul></ul></ul><ul><ul><ul><li>FCM, CPO, CTA </li></ul></ul></ul><ul><ul><ul><li>Arbitration, Discipline </li></ul></ul></ul>© Page 6 of13
    8. 8. Series 34 Exam <ul><li>Exam overview </li></ul><ul><ul><li>Number of Questions: 40 True/False and Multiple Choice </li></ul></ul><ul><ul><li>Time: 1 hour </li></ul></ul><ul><ul><li>Passing Score: 70% </li></ul></ul><ul><ul><li>Subject Matter: Retail Off-Exchange Forex </li></ul></ul><ul><ul><li>Cost: $70 </li></ul></ul><ul><li>Exam Sections </li></ul><ul><ul><li>Definitions and Terminology </li></ul></ul><ul><ul><li>Forex Trading Calculations </li></ul></ul><ul><ul><li>Forex Trading Risks </li></ul></ul><ul><ul><li>Concepts, Theories, Market Participants </li></ul></ul><ul><ul><li>Regulatory Requirements, Interpretive Notices </li></ul></ul><ul><li>Registering for the exam </li></ul><ul><ul><li>Form U-10 </li></ul></ul><ul><ul><li>Pearson or Prometric Testing Centers </li></ul></ul>© Page 7 of13
    9. 9. Forex Disclosure Documents <ul><li>Forex CTA (to separately managed accounts) </li></ul><ul><ul><li>Disclosure Document </li></ul></ul><ul><ul><ul><li>Background of firm and APs </li></ul></ul></ul><ul><ul><ul><li>Discussion of program and major risks </li></ul></ul></ul><ul><ul><ul><li>FDM Information </li></ul></ul></ul><ul><ul><ul><li>Fee Discussion </li></ul></ul></ul><ul><ul><ul><li>Litigation </li></ul></ul></ul><ul><ul><li>Trading Agreement </li></ul></ul><ul><li>Forex CPO (to a forex hedge fund) </li></ul><ul><ul><li>Disclosure Document (PPM) </li></ul></ul><ul><ul><ul><li>Similar to mutual fund prospectus </li></ul></ul></ul><ul><ul><ul><li>Background of firm and APs </li></ul></ul></ul><ul><ul><ul><li>Discussion of program and major risks </li></ul></ul></ul><ul><ul><ul><li>FDM Information </li></ul></ul></ul><ul><ul><ul><li>Fee Discussion </li></ul></ul></ul><ul><ul><ul><li>Litigation </li></ul></ul></ul><ul><ul><li>Operating Agreement </li></ul></ul><ul><ul><li>Subscription Documents </li></ul></ul><ul><ul><ul><li>Subscription Agreement </li></ul></ul></ul><ul><ul><ul><li>Investor Suitability </li></ul></ul></ul><ul><li>Review by NFA </li></ul>© Page 8 of13
    10. 10. Forex IB Requirements <ul><li>Independent Forex Introducing Broker </li></ul><ul><ul><li>Independent must maintain $45,000 net capital at all times </li></ul></ul><ul><ul><li>Form 1-FR-IB (Part A) or FOCUS Report (coversheet and a balance sheet) </li></ul></ul><ul><li>Guaranteed Forex Introducing Broker </li></ul><ul><ul><li>FDM must sponsor and guarantee IB performance </li></ul></ul><ul><ul><li>Guarantee Agreement Form 1-FR-IB (Part B) with FDM (simple 2 pager) </li></ul></ul>© Page 9 of13
    11. 11. Timeline <ul><li>General Considerations </li></ul><ul><ul><li>Contact us at </li></ul></ul><ul><ul><li>Is the business already started? </li></ul></ul><ul><ul><li>Disclosure Issues </li></ul></ul><ul><li>Week 1 </li></ul><ul><ul><li>Complete forex questionnaire; get password to NFA registration system </li></ul></ul><ul><ul><li>Attend to any business items (entity formation, etc) </li></ul></ul><ul><ul><li>Submit Form 7-R and Form 8-R; send in fingerprint cards </li></ul></ul><ul><li>Week 2 </li></ul><ul><ul><li>NFA reviewing application </li></ul></ul><ul><ul><li>Begin drafting CTA or CPO disclosure documents </li></ul></ul><ul><li>Week 3 </li></ul><ul><ul><li>Discuss any issues with the NFA; provide additional materials if necessary </li></ul></ul><ul><ul><li>Finalize documents; submit to NFA for review </li></ul></ul><ul><li>Week 4 </li></ul><ul><ul><li>Registration should be final </li></ul></ul><ul><ul><li>Get all business items in place </li></ul></ul><ul><ul><li>Begin compliance work </li></ul></ul><ul><li>Week 5 – 6 </li></ul><ul><ul><li>Work with the NFA to get disclosure documents approved </li></ul></ul><ul><ul><li>Resolve any regulatory or business issues </li></ul></ul><ul><ul><li>Finalize compliance </li></ul></ul>© Page 10 of13
    12. 12. Compliance Rules <ul><li>Rule 2-41 </li></ul><ul><ul><li>CTA and CPO Disclosure Document Rules </li></ul></ul><ul><li>Rule 2-29 </li></ul><ul><ul><li>Govern Communications with the public and promotional material </li></ul></ul><ul><ul><li>Promotional Material = reports, circulars, advertisements, disseminated material, solicitations, etc. </li></ul></ul><ul><ul><li>General Anti-fraud Provision </li></ul></ul><ul><ul><li>Specific Guidelines </li></ul></ul><ul><ul><ul><li>TV / Radio Ads </li></ul></ul></ul><ul><ul><ul><li>Performance Reporting Guidelines </li></ul></ul></ul><ul><ul><ul><li>Hypothetical </li></ul></ul></ul><ul><ul><ul><li>Disclaimer </li></ul></ul></ul><ul><ul><ul><li>Supervisory Requirements </li></ul></ul></ul><ul><ul><ul><li>Recordkeeping </li></ul></ul></ul><ul><li>Forex Dealer Member Rules </li></ul><ul><ul><li>Rule 2-36 – Variety of different rules for FDMs </li></ul></ul><ul><ul><li>Rule 2-43 – Dealing with customer accounts </li></ul></ul><ul><li>Rules of General Applicability </li></ul><ul><ul><li>Rule 2-9 – Supervision, AML </li></ul></ul><ul><ul><li>Rule 2-10 – Recordkeeping requirements </li></ul></ul><ul><ul><li>Rule 2-38 – Business Continuity and DRP </li></ul></ul>© Page 11 of13
    13. 13. Questions/ Issues to Consider <ul><li>Questions </li></ul><ul><ul><li>Do I need a Series 7 exam license? </li></ul></ul><ul><ul><li>Should I register now? </li></ul></ul><ul><ul><li>What if I am currently a CTA or CPO and I want to start trading Forex? </li></ul></ul><ul><ul><li>What about Forex E-Micros? </li></ul></ul>© Page 12 of13
    14. 14. Disclaimer <ul><li>This presentation was made for informational purposes only. </li></ul><ul><li>I am not providing legal advice to any user. </li></ul><ul><li>This presentation does not establish an attorney-client relationship between myself and the user. </li></ul><ul><li>Any discussion herein is not a substitute for seeking actual legal advice from a licensed attorney with knowledge of the rules and regulations governing the industry. </li></ul><ul><li>I make no representations, guarantees, or warranties as to the accuracy, completeness, currency, or suitability of the information provided via this presentation. </li></ul><ul><li>This may be considered to be “attorney advertising” in some jurisdictions. </li></ul>© Page 13 of13
    15. 15. <ul><li>For voice presentation, please see: </li></ul><ul><li> </li></ul><ul><li>Please send questions, comments or suggestions to </li></ul><ul><li>Bart Mallon at </li></ul>