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NFA Proposes Amendments to Rules on Retail Forex Cost Disclosures

The National Futures Association ("NFA") proposed amendments to Compliance Rules 2-36 ("Requirements for Forex Transactions") and 2-43 ("Forex Orders").

The NFA reported that the Rule 2-36 changes are intended to improve transparency for retail forex customers regarding the costs associated with forex transactions. Associated costs for forex transactions may vary based on the business model employed by a particular forex dealer member ("FDM"). The NFA said that the amendments will allow customers to more accurately assess all such costs. In particular, the NFA proposed that FDMs must disclose to customers, on a per-trade basis, the following information:

(i) commissions or fees charged,

(ii) for firms using a straight-through processing ("STP") model – 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 to the price received from its liquidity provider for the offsetting position, and

(iii) for non-STP firms or FDMs operating a "dealer model" – i.e., whereby 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.

The NFA is also seeking to add clarification to Rule 2-43 to provide that the price adjustment prohibition does not apply to situations in which an FDM adjusts all customer orders that were adversely affected by circumstances beyond a customer's control, such as issues with a third-party vendor.

The NFA requested that the CFTC review and approve the proposed amendments.

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