Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054 Page: 46,656
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Federal Register/Vol. 76, No. 149/Wednesday, August 3, 2011 /Proposed Rules
This section specifies which
documents and records a banking
institution engaged in retail forex
transactions must retain for examination
by the Board. Banking institutions are
required to maintain retail forex account
records, financial ledgers, transactions
records, daily records, order tickets, and
records showing allocations and
noncash margin, as well as records
relating to possible violations of law.
This section also prescribes document
maintenance standards, including the
manner and length of maintenance.
Finally, this section requires banking
institutions to record and maintain
transaction records and make them
available to customers.
Section 240.8-Capital Requirements
This proposal does not amend the
Board's regulations regarding capital.
This section generally requires that a
banking institution that offers or enters
into retail forex transactions must be
"well capitalized" as defined in the
Board's Regulations H or Y 31 or the
banking institution must obtain an
exemption from the Board. An
uninsured state-licensed U.S. branch or
agency of a foreign bank must apply the
capital rules that are made applicable to
it pursuant to section 225.2(r)(3) of the
Board's Regulation Y.32 An Edge
corporation or agreement corporation
must comply with the capital adequacy
guidelines that are made applicable to
an Edge corporation engaged in banking
pursuant to section 211.12(c)(2) of the
Board's Regulation K.33
In addition, a banking institution
must continue to hold capital against
retail forex transactions as provided in
the Board's regulations.
Section 240.9-Margin Requirements
Paragraph (a) requires a banking
institution that engages in retail forex
transactions, in advance of any such
transaction, to collect from the retail
forex customer margin equal to at least
two percent of the notional value of the
retail forex transaction if the transaction
is in a major currency pair, and at least
five percent of the notional value of the
retail forex transaction otherwise. These
margin requirements are identical to the
requirements imposed by the CFTC's
retail forex rule. A major currency pair
is a currency pair with two major
currencies. Under the proposal, the
major currencies would be the U.S.
Dollar (USD), Canadian Dollar (CAD),
Euro (EUR), United Kingdom Pound
3112 CFR 208.43 and 12 CFR 225.2(r).
32 12 CFR 225.2(r)(3).
(GBP), Japanese Yen (JPY), Swiss franc
(CHF), New Zealand Dollar (NZD),
Australian Dollar (AUD), Swedish
Kronor (SEK), Danish Kroner (DKK),
and Norwegian Krone (NOK),34 or any
other currency as determined by the
Question 11.9.1: The Board requests
comment on whether this list of major
currencies is appropriate and how the
Board should identify a major currency
or major currency pair.
Prior to the CFTC's rule, non-bank
dealers routinely permitted customers to
trade with 1 percent margin (leverage of
100:1) and sometimes with as little as
0.25 percent margin (leverage of 400:1).
When the CFTC proposed its retail forex
rule in January 2010, it proposed a
margin requirement of 10 percent
(leverage of 10:1). In response to
comments, the CFTC reduced the
required margin in the final rule to 2
percent (leverage of 50:1) for trades
involving major currencies and 5
percent (leverage of 20:1) for trades
involving non-major currencies.
Question 11.9.2: The Board's proposed
rule would adopt the margin
requirements adopted in final by the
CFTC. The Board invites comments on
whether the requirements should be
adjusted and if so, how.
Paragraph (b) specifies the acceptable
forms of margin that customers may
post. Under the proposal, banking
institutions must establish policies and
procedures providing for haircuts for
noncash margin collected from
customers and must review these
haircuts annually. It may be prudent for
banking institutions to review and
modify the size of the haircuts more
Question 11.9.3: Should the Board
specify haircuts for noncash margin
posted for retail forex transactions? If so,
how should those haircuts be
Paragraph (c) requires a banking
institution to collect additional margin
from the customer or to liquidate the
customer's position if the amount of
margin held by the banking institution
fails to meet the requirements of
paragraph (a). The proposed rule
requires the banking institution to mark
the customer's open retail forex
positions and the value of the
customer's margin to the market daily to
ensure that a retail forex customer does
34 See National Futures Association, Forex
Transaction: A Regulatory Guide 17 (Feb. 2011);
New York Federal Reserve Bank, Survey of North
American Foreign Exchange Volume tbl. 3e (Jan.
2011); Bank for International Settlements, Report on
Global Foreign Exchange Market Activity in 2010 at
15 tbl. B.6 (Dec. 2010).
not accumulate substantial losses not
covered by margin.
Question 11.9.4: How frequently do
banking institutions currently mark
retail forex customers' open retail forex
positions and the value of the
customers' margin to the market?
Should the rule require marking
customer positions and margin to the
market daily, or would more frequent
marks be more appropriate in light of
the speed at which currency markets
move? What is the most frequent mark
to market requirement that is practical
in light of the characteristics of the forex
markets and the assets that retail forex
customers may pledge as margin for
retail forex transaction?
The retail forex regulations adopted
by the OCC and FDIC both prohibit set-
off, i.e., the bank forex dealer would be
prohibited from applying a retail forex
customer's losses against any asset or
liability of the retail forex customer
other than money or property given as
margin. Banks generally have broad
rights to set off mutual debts to cover
customer obligations. It is not clear that
limiting a bank's right of set-off in these
particular transactions would provide
appropriate incentives for retail forex
Question 11.9.5: Would limiting the
right of set-off encourage a retail
customer to take on more risk in forex
transactions, because the customer's
other assets would be protected against
losses from the forex transactions? Does
allowing a banking institution to
exercise its right of set-off with regard
to retail forex transactions strike the
appropriate balance of incentives and
protections for retail customers?
In order to effectuate the prohibition
against a bank retail forex dealer
exercising a right of set-off, the OCC and
FDIC require that each customer's retail
forex transaction margin be held in a
separate account that holds only that
customer's retail forex transaction
margin. The Board is not proposing to
require the use of a separate margin
account, as it is not proposing to
prohibit a banking institution from
exercising a right of set-off.
Section 240.10-Required Reporting to
This section requires a banking
institution engaging in retail forex
transactions to provide each retail forex
customer confirmations and monthly
statements, and describes the
information to be included.
Question 11.10.1: The Board requests
comment on whether this section
provides for statements that would be
meaningful and useful to retail
customers, or whether, in light of the
3312 CFR 211.12(c)(2).
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United States. Office of the Federal Register. Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054, periodical, August 3, 2011; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc52326/m1/70/: accessed February 20, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.