CFTC Obtains Permanent Injunction Against Australian Firm
Commentary by Bob Zwirb
The CFTC announced that Judge James B. Zagel of the U.S. District Court for the Northern District of Illinois issued a Consent Order of Permanent Injunction barring Australian firm Halifax Investment Services, Ltd. from soliciting orders to trade foreign currency ("forex") from U.S. residents who do not qualify as eligible contract participants ("ECPs"), and from offering to be the counterparty to U.S. residents' forex transactions without registering with the CFTC.
According to the Order, Halifax maintained a website that permitted U.S. residents who were not ECPs to potentially apply to open leveraged forex trading accounts by submitting information online to Halifax's website.
The Order requires Halifax to publish a notice on its website stating that Halifax does not provide services for U.S. residents. Additionally, the Order settles CFTC charges that Halifax unlawfully solicited members of the public to engage in forex transactions and operated as a Retail Foreign Exchange Dealer ("RFED") without being registered with the CFTC. The CFTC urged the public to check with the National Futures Association ("NFA") whether a company is registered before investing funds.
See: Consent Order; CFTC Press Release.
See also: Chapter 2 of Lofchie's Guide to CPO/CTA Regulation (accesible to Cabinet subscribers only).
Commentary
In 2010, around the time that Dodd-Frank was enacted, the CFTC adopted a new comprehensive regulatory regime to regulate most off-exchange forex transactions with the retail public. The new rules, which take up more than 30 pages in paper publications of CFTC rules, were adopted following a series of federal court decisions finding that the CFTC did not have jurisdiction over such transactions, with the courts holding that they were spot contracts not subject to the Commodity Exchange Act. After obtaining new authority from Congress to govern retail FX, the CFTC, working closely with NFA, adopted a new Part 5 to its rules to regulate FX transactions conducted with persons who do not qualify as eligible contract participants ("ECPs). As a result, off-shore FX dealers who want to act as counterparties with U.S. customers must now comply with the CFTC's retail FX regulatory regime and register either as FCMs or Retail Foreign Exchange Dealers; or if they transact only with eligible contract participants), they come under theDodd-Frank regulatory regime for swaps.