When it comes to currency laws in regards to foreign exchange, the words law, rule and regulation might as well be interchangeable. The NFA and CFTC have the jurisdiction to enforce any and all rules and regulations, and the CFTC has jurisdiction to enforce any violation of law; needless to say, all market participants better tow the line.
Fraud Regulations
As with any business or personal venture conducted under the law, in Forex law fraud and fraudulent behavior are strictly forbidden. Now, fraud can be a rather broad term, but the CFTC defines fraud as any act or behavior intended to cheat any person, or any attempt to deceive by means of a false statement or otherwise. Even if an entity is indirectly involved, it is still considered fraud. The NFA feels the same, and has jurisdiction to prosecute fraud. Often the CFTC and the NFA will work hand in hand when handling a forex regulation violation as serious as fraud.
Liability Laws
It is important to note that regulation dictates that any person who deals with a firm or other entity, the actions taken on that person’s behalf are consider to have been made by that person. Liability is shared equally between the investor, firm or any other entity involved in the trading on the foreign exchange market. It is important that an investor be well aware of the activities being performed on their behalf, as they are also liable for any fraudulent activity that may occur in those activities. Also, any signature given electronically by either of these parties is binding according to both NFA and CFTC forex rules.
Mandatory Registration
Brokers, dealers, or members which wish to act on the behalf of an investor must be registered with both the CFTC and the NFA. The NFA has strict policies on who can represent an investor on the forex market, and registration with the NFA is very specific. An entity will have to register as a counterparty or CTA (commodity trading advisor) to trade on an investors behalf. However, the NFA does clarify within their forex regulations that if an entity is monitored by another regulator that the other regulator’s requirements supersede that of the NFA.
The Interpretive Notice requires NFA members to procure certain information from customers and to provide to them understandable and timely disclosure of the essential features of foreign exchange trading. This information and the disclosure must be received prior the customer’s first trade. Also, if failing to update the disclosure would be misleading or fraudulent, it is required that the information is updated prior to entering into new forex transactions with current customers.
Also, forex trading entities are required to have in place security procedures that protect the integrity of the market. Mainly, these procedures should be in relation to pricing, slippage and rollovers. Trading platform integrity is required by forex regulation and a must-have business practice.
The laws mentioned above are just a few of many. Before becoming involved in the foreign exchange market, you should read the rules and regulations booklets provided by both the National Futures Association and the U.S Commodity Futures Trading Commission. Both of these booklets are available free on the respective agencies’ websites. To be successful in trading or in investing, it is important to be aware of all laws, rules and regulations within the forex market, as well as any updates to said forex laws, rules, and regulations.
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