House Lawmakers Concerned On CFTC Retail Forex Leverage Proposal
- By Sarah N. Lynch Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- U.S. House lawmakers Wednesday raised concerns a proposal by the Commodity Futures Trading Commission could have negative consequences for the U.S. retail foreign exchange market. Several lawmakers at a House Agriculture farm commodities subcommittee hearing Wednesday grilled CFTC Chairman Gary Gensler about a provision in the commission's proposal that would restrict retail forex investors to a 10 to 1 leverage ratio, thereby forcing them to post much higher collateral. "I don't get what we are trying to accomplish here by lowering this to 10 to 1," said House Agriculture Chairman Collin Peterson (D., Minn), saying the proposal appears to put investors' money even more at risk. "Who are you trying to protect here?" The leverage plan is part of a broader CFTC proposal that seeks to implement new powers Congress bestowed on the agency in 2008 to help police against foreign currency fraud targeting "Mom and Pop" investors in the niche retail foreign currency market. The CFTC's retail foreign exchange proposal would require brokerage firms and their sales teams to register with the CFTC and abide by new reporting, capital and leverage standards. But the leverage piece of the proposal is inconsistent with current rules in place by the self-regulatory National Futures Association, which on certain common currencies allows traders to use leverage up to 100 to 1. In parts of Europe, meanwhile, there are no leverage restrictions and U.S. banks that offer retail forex trading would not be covered by the CFTC's regulations, either. So far the proposal has met with fierce resistance, both by forex dealers and individual traders who are concerned about the leverage ratio. House Agriculture member Jim Marshall (D., Ga.) told Gensler he didn't think Congress intended to "kill the market" when it gave the CFTC more power over retail forex. "If our leverage rules are 10-to-1 and leverage rules elsewhere are 100-to-1, the business is going to move elsewhere," Marshall said, adding that investors could be even less protected if business moves to a country with lax regulations. Gensler told lawmakers the intent of rule is to "protect the public" and the agency is still reviewing the more than 5,600 comments it has received. Most of those comments, he said, pertain to the leverage issue. He also addressed a concern by some about a dueling proposal current being floated by the Financial Industry Regulatory Authority, the self-regulator for securities brokers, which would cap leverage for retail forex at a stricter 4-to-1 leverage ratio for certain firms if approved. "I think it would be good to harmonize the rules," Gensler said. Peterson later told reporters he hopes the CFTC will address the leverage concerns before it finalizes the rule. "I don't think it's well thought out," he said. "I think they are trying to fix a problem that doesn't really exist." -By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=ZFvZhHdDeMBVOMFOL6XyoQ%3D%3D. You can use this link on the day this article is published and the following day.
