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Forex Transactions: Regulatory Guide.

September 2022 revisions: Updated to include reference to Notice to Members 1-22-17 in the Customer Orders section of the guide.

The Commodity Exchange Act (CEA or Act) gives the Commodity Futures Trading Commission (CFTC) jurisdiction over off-exchange (also called over-the-counter or OTC) foreign currency futures and options transactions as well as certain leveraged foreign currency transactions offered to or entered into with retail customers. Under the CEA, only certain regulated entities may be counterparties to these off-exchange trades with retail customers. These regulated entities are certain registered futures commission merchants (FCM) and registered retail foreign exchange dealers (RFED). All other off-exchange futures and options transactions with U.S. retail customers are unlawful unless done on or subject to the rules of a regulated exchange.


Before going on, you should understand:

Customer is any party to a forex trade who is not an eligible contract participant as defined in the Act. This includes individuals with assets of less than $10 million and most small businesses. Forex Transactions are leveraged off-exchange foreign currency transactions where one party is a customer (as defined in the previous bullet), except that the term 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. NFA's forex requirements apply to all Members that engage in forex activities with customers. This Guide should help our Members who are subject to NFA's forex requirements understand those requirements. This Guide does not, however, include every requirement that may apply and does not deal with every detail of the requirements it does include. In addition to this Guide, you should read NFA's rules and interpretive notices and the CFTC's regulations, interpretive notices and letters regarding forex transactions.



A firm may not act as a counterparty, or offer to act as a counterparty, to any forex transaction unless the firm is one of the regulated entities listed in the CEA. These entities (authorized counterparties) are:

U.S.-based financial institutions (e.g., banks and savings associations); financial holding companies; registered FCMs that are primarily or substantially engaged in on-exchange futures activities; and RFEDs.

FCMs and RFEDs must be Members and approved as forex firms by NFA.

Associated Persons.

Individuals employed by an FCM, RFED, introducing broker (IB), commodity pool operator (CPO) or commodity trading advisor (CTA) who solicit or accept retail forex customer orders or supervise any person who solicits or accepts retail forex customer orders must register as associated persons (AP) and be approved as forex APs by NFA. No Member may be approved as a forex firm unless at least one of its principals is registered as an AP and approved as a forex AP.

Introducing Entities.

Except for otherwise regulated U.S.-based financial institutions, registered broker-dealers and certain affiliates and financial holding companies, entities or individuals that introduce forex customers to registered FCMs or RFEDs must register as IBs and be NFA Members.

Account Managers.

Except for otherwise regulated U.S.-based financial institutions, registered broker-dealers and certain affiliates, and financial holding companies, a person or entity exercising trading authority over a customer's forex account must register as a CTA. A person exercising trading authority over a customer's account may not receive or hold the customer's funds. Those funds must be held by the FCM or RFED counterparty.

Pool Operators.

Except for otherwise regulated U.S.-based financial institutions, registered broker-dealers and certain affiliates and financial holding companies, a person or entity who operates a pooled investment vehicle that is not an eligible contract participant that trades forex must register as a CPO. (See Exemptions available to CPOs.)

Members Subject to Forex Requirements.

All Members that engage in forex activities with customers are subject to NFA's forex requirements, although some of those requirements apply only to forex dealer members (FDMs). A Member is an FDM if it acts as counterparty to or offers to act as counterparty to at least one customer. (See NFA Bylaw 306.) Pursuant to the Act and CFTC regulations, FDMs must be registered as either an FCM or an RFED.

Members that engage in forex activities with customers but do not act as counterparties are subject to various anti-fraud, ethical conduct, and supervision requirements if they solicit customers, introduce customers to a counterparty or manage accounts on behalf of customers. Additionally, Members that manage forex accounts on behalf of customers or offer pools that trade forex must provide prospective clients and pool participants with a disclosure document and file it with NFA prior to use. This disclosure document must include the disclosure language proscribed by the CFTC. Additionally, any trading program or pool that includes forex trading must provide certain disclosures and provide periodic (monthly or quarterly) account statements and an annual report to the pool participants.

Soliciting Customers.

Customer Information and Risk Disclosure.

Members or their Associates are required to obtain certain personal and financial information from a customer. At a minimum, Members or their Associates must obtain the customer's true name, address, principal occupation or business, and previous investment, futures trading and forex trading experience. For customers who are individuals, the Member or Associate must obtain the customer's net worth or net assets and current estimated annual income or the previous year's annual income.

Based on this information, Members or their Associates must determine the appropriate risk disclosure to provide the customer. At a minimum, FDMs and IBs must provide retail customers with understandable and timely written risk disclosure on essential features and risks of forex trading prior to opening the account. The written risk disclosure must include the disclosure language prescribed in CFTC Regulation 5.5(b). In addition, immediately following the prescribed disclosure, the risk disclosure statement must also include: (1) the total number of non-discretionary retail forex customer accounts maintained by the FDM, (2) the percentage of such accounts that were profitable in the quarter and (3) the percentage of such accounts that were not profitable during the quarter. In determining whether each account was or was not profitable, FDMs must follow the formula set forth in CFTC Regulation 5.18(i). This section should also include the legend that PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. IBs are required to provide this information for the FDM to whom they are introducing the account. Members are required to obtain a signed and dated acknowledgment from the retail customer that the customer received and understood the disclosure statement prior to opening the account. Members must update this disclosure prior to entering into new forex transactions with current customers if failing to update the information would make it misleading. CPO and CTA Members must provide the disclosure required by CFTC Regulation 4.34.

Members or their Associates may decide that additional risk disclosure for a particular customer is appropriate. For example, if a customer does not have experience trading forex, the Member or Associate must determine what additional information the customer needs to make an informed decision on whether to enter into forex transactions. In some circumstances (e.g., if the customer is living on social security or is looking for a safe investment), the Member or Associate may even have to tell the customer that forex trading is too risky for that particular customer. A Member, however, is not required to reject the account if a customer, after receiving the additional disclosure, still insists on trading forex.

Members and Associates, however, are prohibited from making individualized recommendations to any customer for which the Member or Associate has or should have advised that forex trading is too risky for that customer.

NFA does not require Members to provide their Associates with any grid-like formula to identify those customers who require additional risk disclosure. Your firm should, however, be able to articulate the general factors its Associates consider when deciding whether to give additional risk disclosure.

Each Member must make a record containing the customer information obtained. If the customer declines to provide the required information, the Member or Associate must make a record that the customer declined. A record does not need to be made in the case of a non-U.S. customer. Members must keep copies of all information records for the period of time set forth in CFTC Regulation 1.31.

For all active customers who are individuals, Members who act as the counterparty are required to contact the customer annually to verify that the information remains materially accurate and provide the customer with the opportunity to update the information. If the customer notifies the Member who is acting as the counterparty of any material changes to the information, the Member must determine whether the Member must provide the customer with additional risk disclosure based on the changed information. However, if another Member, such as an IB or CTA currently solicits and communicates with the customer, the Member acting as a counterparty must notify the IB or CTA of the changed information and the IB or CTA must determine if additional risk disclosure is necessary.

Communications with the Public and Promotional Materials.

Members should adopt and enforce written procedures regarding communications with the public. These procedures should address oral sales solicitations as well as promotional material, and they should be reasonably designed to prevent your firm and its Associates from making any communication with potential or current customers that operates as a fraud or deceit, uses a high‑pressure approach, implies that forex transactions are appropriate for all customers, or is not in accordance with the requirements set forth under NFA Compliance Rule 2-29 and the Interpretive Notices related to this rule. For example, you may not represent that forex funds deposited with a Member are "segregated" or given special protection under the bankruptcy laws. If an FDM or an IB represents that its services are commission free, it must prominently disclose how it is compensated in near proximity to this representation. Additionally, an FDM may not represent that a customer will have direct access to the interbank market since the FDM is actually the counterparty to every customer's forex transition. Similarly, no FDM that utilizes straight-through processing can suggest that they are not the counterparty to a customer's trade.

Additionally, an FDM or an IB may not represent that it offers "no-slippage" or can guarantee fills unless it can demonstrate that all orders on its platform have been executed at the price initially quoted when the order was placed on the platform and it does not have the authority to adjust customer accounts so as to have the effect of changing the price at which the order was executed. In other words, if an FDM "re-quotes" prices or has the contractual right to make adjustments that directly or indirectly change the price of an order after it is executed, it cannot claim to have no slippage.

Any reference to hypothetical performance results that could have been achieved using your trading system must comply with NFA Compliance Rule 2-29(c) and the related Interpretive Notice as if the performance results were for on-exchange transactions. Finally, promotional materials may never guarantee against loss.

Members remain responsible for meeting their regulatory obligations in situations where they utilize or promote forex trading systems developed by third parties. Specifically, an FDM has direct responsibility for misleading promotional material if the FDM prepares or distributes it; has agency responsibility if the trading system developer is an agent of the FDM under established principles of agency law; and has supervisory responsibility if the Member fails to supervise its own employees in its activities with a third-party system developer.

Members must maintain all promotional material for five years from the date of last use and must keep it readily accessible for the first two years. Furthermore, Members must maintain supporting documentation for all statements, claims and performance results included in promotional materials.