CFTC Approves Amendments to Rules on Retail Forex Cost Disclosures

The CFTC approved amendments to National Futures Association ("NFA") rules related to disclosures and price adjustments for forex transactions (Compliance Rules 2-36 ("Requirements for Forex Transactions") and 2-43 ("Forex Orders")). The amendments will become effective on April 5, 2018.

In a Notice to Members, the NFA reiterated that the amendments to Rule 2-36 will require retail forex dealers ("RFDs") to provide additional information to improve transparency for retail forex customers concerning the costs associated with forex transactions. RFDs will be required to disclose the following information on a per-trade basis:

  • commission and other fees;
  • for straight-through processing ("STP") transactions – i.e., where the FDM is the counterparty to the customer and to a liquidity provider on an offsetting transaction, and pricing is determined by the FDM's liquidity provider – the mark-up or mark-down imposed on the price received from its liquidity provider for the offsetting position; and
  • for non-STP transactions or FDMs operating a "dealer model" – i.e., where the firms determine the bid/ask spread offered to customers based on the prices received from their liquidity providers – the mid-point spread cost price of what a particular forex contract is worth at the time of execution.

In addition, the amendment to Rule 2-43 clarifies that the price adjustment prohibition is not applicable to situations in which an RFD favorably adjusts customer orders that were negatively impacted by circumstances outside of the customers' control. This includes "issues with third-party vendors such as liquidity providers, trading platforms and related connectivity providers."

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