Dodd-Frank News Center

Temporary Rule Will Enable Broker-Dealers to Engage in Retail Forex Transactions Until July 2012

By John Filar Atwood, Associate Managing Editor,  SEC Today.

The SEC is adopting interim final temporary Rule 15b12-1T to permit a registered broker-dealer to engage in retail foreign exchange transactions with persons who are not eligible contract participants (“retail forex transactions”) until July 16, 2012, provided that the broker-dealer complies with all applicable 1934 Act rules and regulations and SRO rules (Release No. 34-64874, July 13, 2011).  Under Dodd-Frank Section 742(c), certain retail forex transactions would have been prohibited as of July 16 in the absence of the interim rule.  The rule is effective July 15, 2011 and will remain in effect for one year.

The Dodd-Frank Act amends the Commodity Exchange Act as of July 16, 2011 to provide that a person for which there is a federal regulatory agency cannot enter into, or offer to enter into, a retail forex transaction except pursuant to a rule or regulation that allows the transaction issued by the federal agency.  Consequently, broker-dealers for which the SEC is the regulator may not engage in off-exchange retail forex futures and options transactions with a customer except pursuant to a retail forex rule issued by the Commission.  The prohibition does not apply to forex transactions with a customer who qualifies as an eligible contract participant, or to transactions that are spot forex contracts or forward forex contracts irrespective of whether the customer is an eligible contract participant.  The prohibition does apply to “rolling spot” transactions in foreign currency by broker-dealers.

Bill to Block SIPC Recoveries from Investors Introduced

This story appeared in Bank Digest.

Capital Markets and Government-Sponsored Enterprises Subcommittee Chairman Scott Garrett, R-N.J., has announced the introduction of a bill intended to stop the Securities Investor Protection Corporation from attempting to recover from investors funds generated by fraudulent schemes such as the one perpetrated by Bernard Madoff. According to Garrett, the bill would establish that “for the purposes of SIPC protection, customers of registered brokers are legally entitled to rely on their customer statements as evidence of what their broker owes them.”

Schapiro Discusses Market Structure Challenges Facing the Commission

This story appeared in SEC Today.

SEC Chair Mary Schapiro this week spoke to the Security Traders Association about the market structure issues facing the Commission. Since the market turmoil of May 6, the SEC has implemented new circuit breakers for individual stocks, but she believes additional actions are needed. For example, Schapiro called for an examination of ways to prevent erroneous trades from triggering pauses while also allowing pauses to occur when needed. The SEC is considering limit-up/limit-down style trading parameters, she advised, in which trades would have to be executed within a range tied to the best bid and offer.

Senator Johnson Clarifies Compromise on Broker Duty of Care

This story appeared in Jim Hamilton's World of Securities Regulation.

The current regulatory regime treats brokers and advisers differently and subjects them to different standards of care even though the services they provide investors are very similar and investors view their roles as essentially the same. This regime was established during the New Deal and, although amended many times since, remains rooted in the last century. An ultimate goal of financial regulatory reform has been to allow the SEC to align duties for financial intermediaries across financial products. A corollary of this goal is that standards of care for all brokers when providing investment advice about securities to retail investors should be raised to the fiduciary standard to align the legal framework with investment advisers.