WASHINGTON (HedgeWorld.com)–Rep. Jerry Moran, (R-Kan.), chairman of the subcommittee on general farm commodities and risk management, Agriculture Committee, presided over a hearing on the issues that have arisen thus far in the implementation of the Commodity Futures Modernization Act of 2000.
In his brief opening remarks June 19, Mr. Moran said that subcommittee members hoped to learn whether "the appropriate level of regulatory relief was enacted and determine if Congress was successful in its attempt to develop a level of regulation that allows U.S. markets to compete effectively, while protecting market integrity for all participants."
Daniel J. Roth, president of the National Futures Association, was one of those witnesses. Mr. Roth warned that the statute might have inadvertently opened a loophole encouraging hundreds of unregistered and unregulated entities to solicit business from retail foreign-exchange customers.
The loophole he was referring to was the result of a clause in the statute stating that if an "otherwise regulated entity" is the counterparty to a retail forex trade, the regulatory provisions of the Commodity Exchange Act do not apply. This leaves open the possibility that the people actually working the phones, not themselves parties or counter parties, may be completely unregulated. Furthermore, a number of firms that have never done any futures trades appear to have registered as futures commission merchants and become NFA members for the sole purpose of qualifying as otherwise regulated and thereafter doing retail forex trades outside the Commodity Exchange Act.
"From NFA's perspective," Mr. Roth said, "these firms are not really otherwise regulated because all of our rules apply to exchange-traded futures and options transactions and do not generally apply to off-exchange forex transactions."
Mr. Roth did not propose any statutory fix to this problem but indicated he might come back to Congress with reform proposals in the future, depending upon the results of the NFA's continued monitoring of the activities of its forex trading members.
