[Federal Register Volume 76, Number 78 (Friday, April 22, 2011)]
[Proposed Rules]
[Pages 22633-22648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-9821]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 48
[Docket ID OCC-2011-0007]
RIN 1557-AD42
Retail Foreign Exchange Transactions
AGENCY: Office of the Comptroller of the Currency, Department of the
Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing a rule authorizing national banks, Federal branches or
agencies of foreign banks, and their operating subsidiaries to engage
in off-exchange transactions in foreign currency with retail customers.
The proposed rule also describes various requirements with which
national banks, Federal branches or agencies of foreign banks, and
their operating subsidiaries must comply to conduct such transactions.
DATES: Comments on this notice of proposed rulemaking must be received
by May 23, 2011.
ADDRESSES: Because paper mail in the Washington, DC, area is subject to
delay, commenters are encouraged to submit comments by the Federal
eRulemaking Portal or e-mail. Please use the title ``Retail Foreign
Exchange Transactions'' to facilitate the organization and distribution
of the comments. You may submit comments by any of the following
methods:
Federal eRulemaking Portal--``regulations.gov'': Go to
http://www.regulations.gov. Select ``Document Type'' of ``Proposed
Rules,'' and in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-
2011-0007,'' and click ``Search.'' On ``View By Relevance'' tab at
bottom of screen, in the ``Agency'' column, locate the proposed rule
for the OCC, in the ``Action'' column, click on ``Submit a Comment'' or
``Open Docket Folder'' to submit or view public comments and to view
supporting and related materials for this rulemaking action.
Click on the ``Help'' tab on the Regulations.gov home page to get
information on using Regulations.gov, including instructions for
submitting or viewing public comments, viewing other supporting and
related materials, and viewing the docket after the close of the
comment period.
E-mail: [email protected].
Mail: Office of the Comptroller of the Currency, 250 E
Street, SW., Mail Stop 2-3, Washington, DC 20219.
Fax: (202) 874-5274.
Hand Delivery/Courier: 250 E Street, SW., Mail Stop 2-3,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2011-0007'' in your comment. In general, the OCC will
enter all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, e-mail addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this
[[Page 22634]]
proposed rule by any of the following methods:
Viewing Comments Electronically: Go to http://www.regulations.gov. Select ``Document Type'' of ``Proposed Rules,''
and in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-2011-0007,''
and click ``Search.'' Comments will be listed under ``View By
Relevance'' tab at bottom of screen. If comments from more than one
agency are listed, the ``Agency'' column will indicate which comments
were received by the OCC.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 250 E Street, SW., Washington, DC.
For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid
government-issued photo identification and to submit to security
screening in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.
FOR FURTHER INFORMATION CONTACT: Tena Alexander, Senior Counsel, or
Roman Goldstein, Attorney, Securities and Corporate Practices Division,
(202) 874-5120.
SUPPLEMENTARY INFORMATION:
I. Background
On July 21, 2010, President Obama signed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank
Act).\1\ As amended by the Dodd-Frank Act,\2\ the Commodity Exchange
Act (CEA) provides that a United States financial institution \3\ for
which there is a Federal regulatory agency \4\ shall not enter into, or
offer to enter into, a transaction described in section
2(c)(2)(B)(i)(I) of the CEA with a retail customer \5\ except pursuant
to a rule or regulation of a Federal regulatory agency allowing the
transaction under such terms and conditions as the Federal regulatory
agency shall prescribe \6\ (a ``retail forex rule''). Section
2(c)(2)(B)(i)(I) includes ``an agreement, contract, or transaction in
foreign currency that * * * is a contract of sale of a commodity for
future delivery (or an option on such a contract) or an option (other
than an option executed or traded on a national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78f(a)).'' \7\ A Federal regulatory agency's retail
forex rule must treat all such futures and options and all agreements,
contracts, or transactions that are functionally or economically
similar to such futures and options similarly.\8\
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\1\ Public Law 111-203, 124 Stat. 1376.
\2\ Dodd-Frank Act Sec. 742(c)(2) (to be codified at 7 U.S.C.
2(c)(2)(E)). In this preamble, citations to the retail forex
statutory provisions will be the section where the provisions will
be codified in the CEA.
\3\ The CEA defines ``financial institution'' as including ``a
depository institution (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813)).'' 7 U.S.C. 1a(21)(E).
National banks are depository institutions. See 12 U.S.C. 1813(a)(1)
and (c)(1).
\4\ For purposes of the retail forex rules, ``Federal regulatory
agency'' includes ``an appropriate Federal banking agency.'' 7
U.S.C. 2(c)(2)(E)(i)(III). The OCC is the appropriate Federal
banking agency for national banks and Federal branches and agencies
of foreign banks. 12 U.S.C. 1813(q)(1); Dodd-Frank Act Sec.
721(a)(2) (amending 7 U.S.C. 1a to define ``appropriate Federal
banking agency'' by reference to 12 U.S.C. 1813).
\5\ A retail customer is a person who is not an ``eligible
contract participant'' under the CEA.
\6\ 7 U.S.C. 2(c)(2)(E)(ii)(I).
\7\ 7 U.S.C. 2(c)(2)B(i)(II).
\8\ 7 U.S.C. 2(c)(2)(E)(iii)(II).
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Retail forex rules must prescribe appropriate requirements with
respect to disclosure, recordkeeping, capital and margin, reporting,
business conduct, and documentation requirements, and may include such
other standards or requirements as the Federal regulatory agency
determines to be necessary.\9\ This Dodd-Frank Act amendment to the CEA
takes effect 360 days from the enactment of the Act.\10\ Therefore, as
of July 16, 2011, national banks, Federal branches and agencies of
foreign banks, and operating subsidiaries of the foregoing
(collectively, national banks) may not engage in a retail forex
transaction except pursuant to retail forex rules issued by the OCC.
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\9\ 7 U.S.C. 2(c)(2)(E)(iii)(I).
\10\ See Dodd-Frank Act Sec. 754.
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In addition, on July 21, 2011, the OCC will become the appropriate
Federal banking agency for Federal savings associations.\11\ The OCC
plans to regulate retail forex transactions conducted by Federal
savings associations under the same terms as in this proposed rule.
However, the OCC cannot issue regulations governing Federal savings
associations until July 21, 2011. Therefore, the OCC anticipates
issuing on that date an interim final rule with request for public
comment that would expand the scope of this regulation to also cover
Federal savings associations.
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\11\ Dodd-Frank Act Sec. 312.
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On September 10, 2010, the Commodity Futures Trading Commission
(CFTC) adopted a retail forex rule for persons subject to its
jurisdiction.\12\ After studying and considering the CFTC's retail
forex rule, and being mindful of the desirability of issuing comparable
rules, the OCC is proposing to adopt a substantially similar rule for
national banks wishing to engage in retail forex transactions. The
Dodd-Frank Act does not require that retail forex rules be issued
jointly, or on a coordinated basis, with any other Federal regulatory
agency. The Federal banking agencies (the OCC, Federal Reserve Board,
and Federal Deposit Insurance Corporation) are issuing separate
proposed rules. However, the Federal banking agencies intend to
coordinate their efforts.
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\12\ Regulation of Off-Exchange Retail Foreign Exchange
Transactions and Intermediaries, 75 FR 55409 (Sept. 10, 2010) (Final
CFTC Retail Forex Rule). The CFTC proposed these rules prior to the
enactment of the Dodd-Frank Act. Regulation of Off-Exchange Retail
Foreign Exchange Transactions and Intermediaries, 75 FR 3281 (Jan.
20, 2010) (Proposed CFTC Retail Forex Rule).
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For national banks, the requirements in this proposed rule could
overlap with applicable expectations contained in the Interagency
Statement on Retail Sales of Nondeposit Investment Products (NDIP
Policy Statement).\13\ The NDIP Policy Statement sets out guidance
regarding the OCC's expectations when a national bank engages in the
sale of nondeposit investment products to retail customers. The NDIP
Policy Statement addresses issues such as disclosure, suitability,
sales practices, compensation, and compliance. The OCC preliminarily
views retail forex transactions as nondeposit investment products, but
the terms ``retail forex customer'' in this proposed rule and ``retail
customer'' in the NDIP Policy Statement are not necessarily co-
extensive. After the effective date of the final version of this
proposed rule, the OCC will expect national banks engaging in or
offering retail forex transactions to also comply with the expectations
set out in the NDIP Policy Statement to the extent such expectations do
not conflict with the requirements of the OCC's final retail forex
rule.
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\13\ See OCC Bulletin 94-13 (Feb. 24, 1994); see also OCC
Bulletin 1995-52 (Sept. 22, 1995).
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Question I.1: Does the proposed regulation create issues concerning
application of the NDIP Policy Statement to retail forex transactions
that the OCC should address?
II. Section-by-Section Description of the Rule
Structure and Approach
The OCC's proposed retail forex rule is modeled on the CFTC's
retail forex rule to promote consistent treatment of retail forex
transaction regardless of whether a retail forex customer's dealer is a
national bank or a CFTC registrant. The proposal includes various
changes
[[Page 22635]]
that reflect differences between OCC and CFTC supervisory regimes and
differences between national banks and CFTC registrants. For example:
The OCC's proposed retail forex rule leverages the OCC's
existing comprehensive supervision of national banks. For example, the
OCC's proposed retail forex rule does not include registration
requirements, because national banks are already subject to
comprehensive supervision by the OCC. Thus, instead of a registration
requirement, national banks must receive a supervisory non-objection to
conduct a retail forex business.
Because national banks are already subject to various
capital and other supervisory requirements,\14\ the OCC's proposed
retail forex rule generally requires national banks wishing to engage
in retail forex transactions to be ``well capitalized.''
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\14\ See, e.g., 12 CFR parts 3, 6, and 28.
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Section 48.1--Authority, Purpose, and Scope
This section authorizes a national bank to conduct retail forex
transactions.
The OCC notes that some national banks may also engage in retail
forex transactions through their foreign branches. The CEA does not
clearly define whether foreign branches of national banks may be
considered United States financial institutions that can be included in
the scope of this proposed rule. Generally, the OCC defines a national
bank to include all its branches, foreign and domestic. Using that
definition, the proposed retail forex rule would include these
branches, and all their transactions would be subject to the terms of
this proposed rule.
Question II.1.1: The OCC requests comment on whether this rule
should apply to national banks' foreign branches conducting retail
forex transactions abroad, whether with U.S. or foreign customers.
Section 48.2--Definitions
This section defines terms specific to retail forex transactions
and to the regulatory requirements that apply to retail forex
transactions.
The definition of ``retail forex transaction'' generally includes
the following transactions in foreign currency between a national bank
and a person that is not an eligible contract participant: \15\ (i) A
future or option on such a future; \16\ (ii) options not traded on a
registered national securities exchange; \17\ and (iii) certain
leveraged or margined transactions.\18\ This definition has several
important features.
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\15\ The definition of ``eligible contract participant'' is
found in the CEA and is discussed below.
\16\ 7 U.S.C. 2(c)(2)(B)(i)(I).
\17\ 7 U.S.C. 2(c)(2)(B)(i)(I).
\18\ 7 U.S.C. 2(c)(2)(C).
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First, certain transactions in foreign currency are not ``retail
forex transactions.'' For example, a ``spot'' forex transaction where
one currency is bought for another and the two currencies are exchanged
within two days would not meet the definition of a ``retail forex
transaction,'' since actual delivery occurs as soon as practicable.\19\
Similarly, a ``retail forex transaction'' does not include a forward
contract with a commercial entity that creates an enforceable
obligation to make or take delivery, provided the commercial
counterparty has the ability to make delivery and accept delivery in
connection with its line of business.\20\ In addition, the definition
does not include transactions done through an exchange, because in
those cases the exchange would be the counterparty to both the national
bank and the retail forex customer, rather than the national bank
directly facing the retail forex customer.
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\19\ See generally CFTC v. Int'l Fin. Servs. (New York), Inc.,
323 F. Supp. 2d 482, 495 (S.D.N.Y. 2004) (distinguishing between
foreign exchange futures contracts and spot contracts in foreign
exchange, and noting that foreign currency trades settled within two
days are ordinarily spot transactions rather than futures
contracts); see also Bank Brussels Lambert v. Intermetals Corp., 779
F. Supp. 741, 748 (S.D.N.Y. 1991).
\20\ See generally CFTC v. Int'l Fin. Servs. (New York), Inc.,
323 F. Supp. 2d 482, 495 (S.D.N.Y. 2004) (distinguishing between
forward contracts in foreign exchange and foreign exchange futures
contracts); see also William L. Stein, The Exchange-Trading
Requirement of the Commodity Exchange Act, 41 Vand. L.Rev. 473, 491
(1988). In contrast to forward contracts, futures contracts
generally include several or all of the following characteristics:
(i) Standardized nonnegotiable terms (other than price and
quantity); (ii) parties are required to deposit initial margin to
secure their obligations under the contract; (iii) parties are
obligated and entitled to pay or receive variation margin in the
amount of gain or loss on the position periodically over the period
the contract is outstanding; (iv) purchasers and sellers are
permitted to close out their positions by selling or purchasing
offsetting contracts; and (v) settlement may be provided for by
either (a) cash payment through a clearing entity that acts as the
counterparty to both sides of the contract without delivery of the
underlying commodity; or (b) physical delivery of the underlying
commodity. See Edward F. Greene et al., U.S. Regulation of
International Securities and Derivatives Markets Sec. 14.08[2] (8th
ed. 2006).
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Second, rolling spot forex transactions (so-called Zelener \21\
contracts), including without limitation such transactions traded on
the Internet, through a mobile phone, or on an electronic platform,
could fall within the definition's third category; the OCC
preliminarily believes that rolling spot transactions should be
regulated as retail forex transactions.\22\ A rolling spot forex
transaction nominally requires delivery of currency within two days,
like spot transactions. However, in practice, the contracts are
indefinitely renewed every other day and no currency is actually
delivered until one party affirmatively closes out the position.\23\
Therefore, the contracts are economically more like futures than spot
contracts, although courts have held them to be spot contracts in
form.\24\
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\21\ CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004); see also
CFTC v. Erskine, 512 F.3d 309 (6th Cir. 2008).
\22\ 7 U.S.C. 2(c)(2)(E)(iii) (requiring that retail forex rules
treat all functionally or economically similar transactions
similarly); see 17 CFR 5.1(m) (defining ``retail forex transaction''
for CFTC-registered retail forex dealers).
\23\ For example, in Zelener, the retail forex dealer retained
the right, at the date of delivery of the currency to deliver the
currency, roll the transaction over, or offset all or a portion of
the transaction with another open position held by the customer. See
CFTC v. Zelener, 373 F.3d 861, 868 (7th Cir. 2004).
\24\ See, e.g., CFTC v. Erskine, 512 F.3d 309, 326 (6th Cir.
2008); CFTC v. Zelener, 373 F.3d 861, 869 (7th Cir. 2004).
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Question II.2.1: Should leveraged or margined forex transactions,
including rolling spot forex transactions and functionally or
economically similar transactions, be included in the definition of
``retail forex transaction''? Would excluding such transactions create
a regulatory gap for retail forex products?
This section defines several terms by reference to the CEA, the
most important of which is ``eligible contract participant.'' Foreign
currency transactions with eligible contract participants are not
considered retail forex transactions and are therefore not subject to
this rule. In addition to a variety of financial entities, certain
governmental entities, businesses, and individuals may be eligible
contract participants.\25\
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\25\ The term ``eligible contract participant'' is defined at 7
U.S.C. 1a(18), and for purposes most relevant to this proposed rule
generally includes:
(a) A corporation, partnership, proprietorship, organization,
trust, or other entity--
(1) That has total assets exceeding $10,000,000;
(2) The obligations of which under an agreement, contract, or
transaction are guaranteed or otherwise supported by a letter of
credit or keepwell, support, or other agreement by certain other
eligible contract participants; or
(3) That--
(i) Has a net worth exceeding $1,000,000; and
(ii) Enters into an agreement, contract, or transaction in
connection with the conduct of the entity's business or to manage
the risk associated with an asset or liability owned or incurred or
reasonably likely to be owned or incurred by the entity in the
conduct of the entity's business;
(b) Subject to certain exclusions,
(1) A governmental entity (including the United States, a State,
or a foreign government) or political subdivision of a governmental
entity;
(2) A multinational or supranational governmental entity; or
(3) An instrumentality, agency or department of an entity
described in (b)(1) or (2); and
(c) An individual who has amounts invested on a discretionary
basis, the aggregate of which is in excess of--
(1) $10,000,000; or
(2) $5,000,000 and who enters into the agreement, contract, or
transaction in order to manage the risk associated with an asset
owned or liability incurred, or reasonably likely to be owned or
incurred, by the individual.
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Question II.2.2: Does the Commodity Exchange Act's definition of
``eligible contract participant'' appropriately capture who is not a
retail customer for purposes of this proposed rule? Should the OCC
expand the definition of retail forex customer to include persons who
are eligible contract participants? If so, which eligible contract
participants should be considered retail forex customers?
Section 48.3--Prohibited Transactions
This section prohibits a national bank and its institution-
affiliated parties from engaging in fraudulent conduct in connection
with retail forex transactions. This section also prohibits a national
bank from acting as a counterparty to a retail forex transaction if the
national bank or its affiliate exercises discretion over the customer's
retail forex account because the OCC views such self-dealing as
inappropriate.
Section 48.4--Supervisory Non-Objection
This section requires a national bank to obtain a written
supervisory non-objection prior to engaging in a retail forex business.
To obtain such non-objection, the national bank will have to provide
such information as the OCC deems necessary to determine that the
national bank would satisfy the requirements of the rule. This
information will include information on: customer due diligence
(including credit evaluations, customer appropriateness, and ``know
your customer'' documentation); new product approvals; haircuts for
noncash margin; and conflicts of interest. In addition, the national
bank must establish that it has adequate written policies, procedures,
and risk measurement and management systems and controls.
National banks engaged in retail forex transactions as of the
effective date of this rule who promptly request the OCC's review of
their retail forex business will have six months, or a longer period
provided by the OCC, to bring their operations into conformance with
the rule. Under this rule, a national bank that requests the OCC's
review within 30 days of the effective date of the final retail forex
rule and submits the information requested by the OCC will be deemed to
be operating its retail forex business pursuant to a rule or regulation
of a Federal regulatory agency, as required under the Commodity
Exchange Act, for such period.\26\
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\26\ 7 U.S.C. 2(c)(2)(E)(ii)(I).
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A national bank need not join a futures self-regulatory
organization as a condition of conducting a retail forex business.
Section 48.5--Application and Closing Out of Offsetting Long and Short
Positions
This section requires a national bank to close out offsetting long
and short positions in a retail forex account. The national bank would
have to offset such positions regardless of whether the customer has
instructed otherwise. The CFTC concluded that ``keeping open long and
short positions in a retail forex customer's account removes the
opportunity for the customer to profit on the transactions, increases
the fees paid by the customer and invites abuse.'' \27\ The OCC agrees
with this concern. A national bank may offset retail forex transactions
as instructed by the retail forex customer or the customer's agent if
the instructions do not come from the national bank.
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\27\ Proposed CFTC Retail Forex Rule, 75 FR at 3287 n.54.
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Section 48.6--Disclosure
This section requires a national bank to provide retail forex
customers with a risk disclosure statement similar to the one required
by the CFTC's retail forex rule, but tailored to address certain unique
characteristics of retail forex in national banks. The prescribed risk
disclosure statement would describe the risks associated with retail
forex transactions. The disclosure statement would make clear that a
national bank is prohibited from applying customer losses arising out
of retail forex transactions against any property of a customer other
than money or property specifically given as margin for retail forex
transactions; the national bank may not use rights of set-off to
collect margin for or cover losses arising out of retail forex
transactions.
In its retail forex rule, the CFTC requires its registrants to
disclose to retail customers the percentage of retail forex accounts
that earned a profit, and the percentage of such accounts that
experienced a loss, during each of the most recent four calendar
quarters.\28\ The CFTC initially explained that ``the vast majority of
retail customers who enter these transactions do so solely for
speculative purposes, and that relatively few of these participants
trade profitably.'' \29\ In its final rule, the CFTC found this
requirement appropriate to protect retail customers from ``inherent
conflicts embedded in the operations of the retail over-the-counter
forex industry.'' \30\ The OCC generally agrees with the CFTC and this
proposed rule requires this disclosure; however, the OCC invites
comments regarding this approach.
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\28\ 17 CFR 5.5(e)(1).
\29\ Proposed CFTC Retail Forex Rule, 75 FR at 3289.
\30\ Final CFTC Retail Forex Rule, 75 FR at 55412.
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Question II.6.1: Does this disclosure provide meaningful
information to retail customers of national banks? Would alternative
disclosures more effectively accomplish the objectives of the
disclosure?
Similarly, the CFTC's retail forex rule requires a disclosure that
when a retail customer loses money trading, the dealer makes money on
such trades, in addition to any fees, commissions, or spreads.\31\ The
proposed rule includes this disclosure requirement.
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\31\ 17 CFR 5.5(b).
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Question II.6.2: Does this disclosure provide meaningful
information to retail customers of national banks? Would alternative
disclosures more effectively accomplish the objectives of the
disclosure?
As proposed, the risk disclosure must be provided as a separate
document.
Question II.6.3: Would it be convenient to national banks and
retail forex customers to allow the retail forex risk disclosure to be
combined with other disclosures that national banks make to their
customers? Or would combining disclosures diminish the impact of the
retail forex disclosure?
Question II.6.4: Should the rule require disclosure of the fees the
national bank charges retail forex customers for retail forex
transactions? What fees do national banks currently charge retail forex
customers for retail forex transactions? Are there other costs to
retail forex customers of engaging in retail forex transactions that
national banks should disclose? If so, what are these costs?
Section 48.7--Recordkeeping
This section specifies which documents and records a national bank
engaged in retail forex transactions must retain for examination by the
OCC. This section also prescribes document maintenance standards.
[[Page 22637]]
Section 48.8--Capital Requirements
This section requires that a national bank that offers or enters
into retail forex transactions must be ``well capitalized'' as defined
in the OCC's prompt corrective action regulation \32\ or the national
bank must obtain an exemption from the OCC. In addition, a national
bank must continue to hold capital against retail forex transactions as
provided in the OCC's capital regulation.\33\ This rule does not amend
the OCC's prompt corrective action regulation or capital regulation.
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\32\ 12 CFR part 6.
\33\ 12 CFR part 3.
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Section 48.9--Margin Requirements
Paragraph (a) requires a national bank 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. The major currencies currently are the U.S. Dollar (USD),
Canadian Dollar (CAD), Euro (EUR), United Kingdom Pound (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\ An evolving market could change the major currencies,
so the OCC is not proposing to define the term ``major currency,'' but
rather expects that national banks will obtain an interpretive letter
from the OCC prior to treating any currency other than those listed
above as a ``major currency.'' \35\
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\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).
\35\ The Final CFTC Retail Forex Rule similarly does not define
``major currency.''
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Question II.9.1: The OCC requests comment on whether it should
explicitly define the major currencies or major currency pairs in the
proposed rule and whether commenters have any other suggestions on how
the OCC should identify a major currency or major currency pair.
For retail forex transactions, margin protects the retail forex
customer from the risks related to trading with excessive leverage. The
volatility of the foreign currency markets exposes retail forex
customers to substantial risk of loss. High leverage ratios can
significantly increase a customer's losses and gains. Even a small move
against a customer's position can result in a substantial loss. Even
with required margin, losses can exceed the margin posted, and if the
account is not closed out, and depending on the specific circumstances,
the customer could be liable for additional losses. Given the risks
that inhere in the trading of retail forex transactions by retail
customers, the only funds that should be invested in such transactions
are those that the customer can afford to lose.
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 II.9.2: The OCC believes that these margin requirements
are appropriate to protect retail customers, but invites comments on
whether the requirements should be adjusted.
Paragraph (b) specifies the acceptable forms of margin that
customers may post. National banks 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 national banks to review and modify the size of the haircuts more
frequently.
Question II.9.3: Should the OCC provide for haircuts for noncash
margin posted for retail forex transactions? If so, what should those
haircuts be?
Paragraph (c) requires a national bank to hold each retail forex
customer's retail forex transaction margin in a separate account that
contains only that customer's retail forex margin. This paragraph is
designed to work with the prohibition on set-off in paragraph (e), so
that a national bank may not have an account agreement that treats all
of a retail forex customer's assets held by a bank as margin for retail
forex transactions.
Paragraph (d) requires a national bank to collect additional margin
from the customer or to liquidate the customer's position if the amount
of margin held by the national bank fails to meet the requirements of
paragraph (a). The proposed rule requires the national bank 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
not accumulate substantial losses not covered by margin.
Question II.9.4: How frequently do national banks 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?
Paragraph (e) prohibits a national bank 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. A national
bank's relationship with a retail forex customer may evolve out of a
prior relationship of providing financial services or may evolve into
such a relationship. Thus it is more likely that a national bank acting
as a retail forex counterparty will hold other assets or liabilities of
a retail forex customer, for example a deposit account or mortgage,
than a retail forex dealer regulated by the CFTC. The OCC believes it
is inappropriate to allow a national bank to leave trades open and
allow additional losses to accrue that can be applied against a retail
forex customer's other assets or liabilities held by the national bank.
Section 48.10--Required Reporting to Customers
This section requires a national bank engaging in retail forex
transactions to provide each retail forex customer a monthly statement
and confirmation statements.
Question II.10.1: The OCC requests comment on whether this section
provides for statements that would be meaningful and useful to retail
customers, or whether, in light of the distinctive characteristics of
retail forex transactions, other information would be more appropriate.
Section 48.11--Unlawful Representations
This section prohibits a national bank and its institutional-
affiliated parties from representing that the Federal government, the
OCC, or any other Federal agency has sponsored, recommended, or
approved retail forex
[[Page 22638]]
transactions or products in any way. This section also prohibits a
national bank from implying or representing that it will guarantee
against or limit retail forex customer losses or not collect margin as
required by section 48.9. This section does not prohibit a national
bank from sharing in a loss resulting from error or mishandling of an
order, and guaranties entered into prior to effectiveness of the
prohibition would only be affected if an attempt is made to extend,
modify, or renew them. This section also does not prohibit a national
bank from hedging or otherwise mitigating its own exposure to retail
forex transactions or any other foreign exchange risk.
Section 48.12--Authorization to Trade
This section requires a national bank to have specific written
authorization from a retail forex customer before effecting a retail
forex transaction for that customer.
Section 48.13--Trading and Operational Standards
This section largely follows the trading standards of the CFTC's
retail forex rule, which were developed to prevent some of the
deceptive or unfair practices identified by the CFTC and the National
Futures Association.
Under paragraph (a), a national bank engaging in retail forex
transactions is required to establish and enforce internal rules,
procedures and controls (1) to prevent front running, in which
transactions in accounts of the national bank or its related persons
are executed before a similar customer order; (2) to establish
settlement prices fairly and objectively; and (3) to record and
maintain transaction records and make them available to customers.
Paragraph (b) prohibits a national bank engaging in retail forex
transactions from disclosing that it holds another person's order
unless disclosure is necessary for execution or is made at the OCC's
request.
Paragraph (c) ensures that institution-affiliated parties of
another retail forex counterparty do not open accounts with a national
bank without the knowledge and authorization of the account
surveillance personnel of the other retail forex counterparty to which
they are affiliated. Similarly, paragraph (d) ensures that institution-
affiliated parties of a national bank do not open accounts with other
retail forex counterparties without the knowledge and authorization of
the account surveillance personnel of the national bank to which they
are affiliated.
Paragraph (e) prohibits a national bank engaging in retail forex
transactions from (1) entering a retail forex transaction to be
executed at a price that is not at or near prices at which other retail
forex customers have executed materially similar transactions with the
national bank during the same time period, (2) changing prices after
confirmation, (3) providing a retail forex customer with a new bid
price that is higher (or lower) than previously provided without
providing a new ask price that is similarly higher (or lower) as well,
and (4) establishing a new position for a retail forex customer (except
to offset an existing position) if the national bank holds one or more
outstanding orders of other retail forex customers for the same
currency pair at a comparable price.
Paragraph (e)(3) does not prevent a national bank from changing the
bid or ask prices of a retail forex transaction to respond to market
events. The OCC understands that market practice among CFTC-registrants
is not to offer requotes, but to simply reject orders and advise
customers they may submit a new order (which the dealer may or may not
accept). Similarly, a national bank may reject an order and advise
customers they may submit a new order.
Question II.13.1: Does this requirement appropriately protect
retail forex customers? If not, how it should be modified? Would it be
simpler for the rule to simply prohibit requoting, because national
banks may instead reject an order and accept new orders from their
retail forex customers?
Paragraph (e)(4) requires a national bank engaging in retail forex
transactions to execute similar orders in the order they are received.
The prohibition prevents a national bank from offering preferred
execution to some of its retail forex customers but not others.
Section 48.14--Supervision
This section imposes on a national bank and its agents, officers,
and employees a duty to supervise subordinates with responsibility for
retail forex transactions to ensure compliance with the OCC's retail
forex rule.
Question II.14.1: Does this section impose any additional
requirements not already encompassed by safety and soundness standards
applicable to national banks and their agents, officers, and employees?
Section 48.15--Notice of Transfers
This section describes the requirements for transferring a retail
forex account. Generally, a national bank must provide retail forex
customers 30 days' prior notice before transferring or assigning their
account. Affected customers may then instruct the national bank to
transfer the account to an institution of their choosing or liquidate
the account. There are three exceptions to the above notice
requirement: a transfer in connection with the receivership or
conservatorship under the Federal Deposit Insurance Act; a transfer
pursuant to a retail forex customer's specific request; and a transfer
otherwise allowed by applicable law. A national bank that is the
transferee of retail forex accounts must generally provide the
transferred customers with the risk disclosure statement of section 6
and obtain each affected customer's written acknowledgement within 60
days.
Section 48.16--Customer Dispute Resolution
This section imposes limitations on how a national bank may handle
disputes arising out of a retail forex transaction. For example, this
section would restrict a national bank's ability to require mandatory
arbitration for such disputes.
III. Request for Comments
The OCC requests comment on all aspects of the proposed rule,
including the questions posed in the preamble. In addition, the OCC
requests comments on the following questions:
Question III.1: Does the proposed rule appropriately
protect retail forex customers of national banks?
Question III.2: Are the proposed rule's variations from
the CFTC retail forex rule appropriately tailored to the differences
between national banks and CFTC registrants and the regulatory regimes
applicable to each?
To assist in the review of comments, the OCC requests that commenters
identify their comments by question number.
IV. Regulatory Analysis
A. Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA)
generally requires an agency that is issuing a proposed rule to prepare
and make available for public comment an initial regulatory flexibility
analysis that describes the impact of the proposed rule on small
entities. The RFA provides that an agency is not required to prepare
and publish an initial regulatory flexibility analysis if the agency
certifies that the proposed rule will not, if promulgated as a final
rule, have a significant economic impact on a substantial number of
small entities. Under regulations issued by the Small Business
Administration, a small entity
[[Page 22639]]
includes a commercial bank with assets of $175 million or less.\36\ The
proposed rule would impose recordkeeping and disclosure requirements on
banks, including small banks, which engage in retail forex transactions
with their customers.
---------------------------------------------------------------------------
\36\ Small Business Administration regulations define ``small
entities'' to include banks with a four-quarter average of total
assets of $175 million or less (13 CFR 121.201).
---------------------------------------------------------------------------
Pursuant to section 605(b) of the RFA, the OCC certifies that this
proposed rule will not have a significant economic impact on a
substantial number of the small entities it supervises. Accordingly, a
regulatory flexibility analysis is not required. In making this
determination, the OCC estimated that there are no small banking
organizations currently engaging in retail forex transactions with
their customers. Therefore, the OCC estimates that no small banking
organizations under its supervision would be affected by the proposed
rule.
Persons wishing to submit written comments regarding the OCC's
certification under the RFA should refer to the instructions for
submitting comments in the front of this release. Such comments will be
considered and placed in the same public file as comments on the
proposal itself.
B. Paperwork Reduction Act
Request for Comment on Proposed Information Collection
In accordance with section 3512 of the Paperwork Reduction Act
(PRA) of 1995 (44 U.S.C. 3501-3521), the OCC may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The information collection
requirements contained in this notice of proposed rulemaking have been
submitted by the OCC to OMB for review and approval under section 3506
of the PRA and Sec. 1320.11 of OMB's implementing regulations (5 CFR
part 1320 et seq.). The information collection requirements are found
in Sec. Sec. 48.4-48.7, 48.9-48.10, 48.13, 48.15-48.16.
Comments are invited on:
(a) Whether the collection of information is necessary for the
proper performance of the OCC's functions, including whether the
information has practical utility;
(b) The accuracy of the estimate of the burden of the information
collection, including the validity of the methodology and assumptions
used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments should
be addressed to: Communications Division, Office of the Comptroller of
the Currency, Public Information Room, Mailstop 2-3, Attention: 1557-
NEW, 250 E Street, SW., Washington, DC 20219. In addition, comments may
be sent by fax to 202-874-5274, or by electronic mail to
[email protected]. You may personally inspect and photocopy
comments at the OCC, 250 E Street, SW., Washington, DC 20219. For
security reasons, the OCC requires that visitors make an appointment to
inspect comments. You may do so by calling 202-874-4700. Upon arrival,
visitors will be required to present valid government-issued photo
identification and submit to security screening in order to inspect and
photocopy comments.
Additionally, you should send a copy of your comments to the OMB
Desk Officer, by mail to U.S. Office of Management and Budget, 725 17th
Street, NW., 10235, Washington, DC 20503, or by fax to 202-395-6974.
Proposed Information Collection
Title of Information Collection: Retail Foreign Exchange
Transactions.
Frequency of Response: On occasion.
Affected Public: Businesses or other for-profit.
Respondents: National banks and Federal branches and agencies of
foreign banks.
Reporting Requirements
The reporting requirements in Sec. 48.4 would require that, prior
to initiating a retail forex business, a national bank provide the OCC
with prior notice and obtain a written supervisory non-objection
letter. In order to obtain a supervisory non-objection letter, a
national bank must have written policies and procedures, and risk
measurement and management systems in controls in place to ensure that
retail forex transactions are conducted in a safe and sound manner. The
national bank must also provide other information required by the OCC,
such as documentation of customer due diligence, new product approvals,
and haircuts applied to noncash margins. A national bank already
engaging in a retail forex business may continue to do so, provided it
requests an extension of time.
Disclosure Requirements
Under Sec. 48.5, regarding the application and closing out of
offsetting long and short positions, would require a national bank to
promptly provide the customer with a statement reflecting the financial
result of the transactions and the name of the introducing broker to
the account. The customer would provide specific written instructions
on how the offsetting transaction should be applied.
Section 48.6 would require that a national bank furnish a retail
forex customer with a written disclosure before opening an account that
will engage in retail forex transactions for a retail forex customer
and receive an acknowledgment from the customer that it was received
and understood. It also requires the disclosure by a national bank of
its fees and other charges and its profitable accounts ratio.
Section 48.10 would require a national bank to issue monthly
statements to each retail forex customer and to send confirmation
statements following transactions.
Section 48.13(b) would allow disclosure by a national bank that an
order of another person is being held by them only when necessary to
the effective execution of the order or when the disclosure is
requested by the OCC. Section 48.13(c) would prohibit a national bank
engaging in retail forex transactions from knowingly handling the
account of any related person of another retail forex counterparty
unless it receives proper written authorization, promptly prepares a
written record of the order, and transmits to the counterparty copies
all statements and written records. Section 48.13(d) would prohibit a
related person of a national bank engaging in forex transactions from
having an account with another retail forex counterparty unless it
receives proper written authorization and copies of all statements and
written records for such accounts are transmitted to the counterparty.
Section 48.15 would require a national bank to provide a retail
forex customer with 30 days' prior notice of any assignment of any
position or transfer of any account of the retail forex customer. It
would also require a national bank to which retail forex accounts or
positions are assigned or transferred to provide the affected customers
with risk disclosure
[[Page 22640]]
statements and forms of acknowledgment and receive the signed
acknowledgments within 60 days.
The customer dispute resolution provisions in Sec. 48.16 would
require certain endorsements, acknowledgments, and signature language.
It also would require that within 10 days after receipt of notice from
the retail forex customer that they intend to submit a claim to
arbitration, the national bank provide them with a list of persons
qualified in the dispute resolution and that the customer must notify
the national bank of the person selected within 45 days of receipt of
such list.
Policies and Procedures; Recordkeeping
Sections 48.7 and 48.13 would require that a national bank engaging
in retail forex transactions keep full, complete, and systematic
records and establish and implement internal rules, procedures, and
controls. Section 48.7 also would require that a national bank keep
account, financial ledger, transaction and daily records, as well as
memorandum orders, post-execution allocation of bunched orders, records
regarding its ratio of profitable accounts, possible violations of law,
records for noncash margin, and monthly statements and confirmations.
Section 48.9 would require policies and procedures for haircuts for
noncash margin collected under the rule's margin requirements, and
annual evaluations and modifications of the haircuts.
Estimated PRA Burden
Estimated Number of Respondents: 42 national banks; 3 service
providers.
Total Reporting Burden: 672 hours.
Total Disclosure Burden: 54,166 hours.
Total Recordkeeping Burden: 12,416 hours.
Total Annual Burden: 67,254 hours.
C. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995 \37\
(Unfunded Mandates Act), requires that an agency prepare a budgetary
impact statement before promulgating any rule likely to result in a
Federal mandate that may result in the expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. The OCC has determined that
this proposed rule, if adopted as a final rule, will not result in
expenditures by State, local, and tribal governments, or by the private
sector, of $100 million or more in any one year.\38\ Accordingly, this
proposed rule is not subject to section 202 of the Unfunded Mandates
Act.
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\37\ 2 U.S.C. 1532.
\38\ In particular, the OCC notes that forex transactions
between national banks and governmental entities are not retail
forex transactions subject to this rule, because governmental
entities are eligible contract participants. See 7 U.S.C.
1a(18)(A)(vii).
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D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the OCC to use
plain language in all proposed and final rules published after January
1, 2000. The OCC invites comment on how to make this proposed rule
easier to understand. For example, the OCC requests comment on such
questions as:
Have we organized the material to suit your needs? If not,
how could the material be better organized?
Have we clearly stated the requirements of the rule? If
not, how could the rule be more clearly stated?
Does the rule contain technical language or jargon that is
not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would make the regulation easier to
understand?
What else could we do to make the regulation easier to
understand?
List of Subjects in 12 CFR Part 48
Consumer protection, Definitions, Federal branches and agencies,
Foreign currencies, Foreign exchange, National banks, Reporting and
recordkeeping requirements.
For the reasons stated in the preamble, the OCC proposes to add
part 48 to Title 12, Chapter I of the Code of Federal Regulations to
read as follows:
PART 48--RETAIL FOREIGN EXCHANGE TRANSACTIONS
Sec.
48.1 Authority, purpose, and scope.
48.2 Definitions.
48.3 Prohibited transactions.
48.4 Supervisory non-objection.
48.5 Application and closing out of offsetting long and short
positions.
48.6 Disclosure.
48.7 Recordkeeping.
48.8 Capital requirements.
48.9 Margin requirements.
48.10 Required reporting to customers.
48.11 Unlawful representations.
48.12 Authorization to trade.
48.13 Trading and operational standards.
48.14 Supervision.
48.15 Notice of transfers.
48.16 Customer dispute resolution.
Authority: 12 U.S.C. 1, 24, 93a, 161, 1813(q), 1818, 1831o,
3102, 3106a, 3108.
Sec. 48.1 Authority, purpose and scope.
(a) Authority. A national bank may engage in retail foreign
exchange transactions. A national bank engaging in such transactions
shall comply with the requirements of this part.
(b) Purpose. This part establishes rules applicable to retail
foreign exchange transactions engaged in by national banks and applies
on or after the effective date.
(c) Scope. This part applies to national banks.
Sec. 48.2 Definitions.
In addition to the definitions in this section, for purposes of
this part, the following terms have the same meaning as in the
Commodity Exchange Act: ``affiliated person of a futures commission
merchant''; ``associated person''; ``contract of sale''; ``commodity'';
``eligible contract participant''; ``futures commission merchant'';
``security''; and ``security futures product''.
Affiliate has the same meaning as in section 2(k) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. 1
et seq.).
Forex means foreign exchange.
Institution-affiliated party or IAP has the same meaning as in 12
U.S.C. 1813(u)(1), (2), or (3).
Introducing broker means any person who solicits or accepts orders
from a retail forex customer in connection with retail forex
transactions.
National bank means:
(1) A national bank;
(2) A Federal branch or agency of a foreign bank, each as defined
in 12 U.S.C. 3101; and
(3) An operating subsidiary of a national bank or a Federal branch
or agency of a foreign bank.
Related person, when used in reference to a retail forex
counterparty, means:
(1) Any general partner, officer, director, or owner of ten percent
or more of the capital stock of the national bank;
(2) An associated person or employee of the retail forex
counterparty, if the retail forex counterparty is not a national bank;
[[Page 22641]]
(3) An IAP, if the retail forex counterparty is a national bank;
and
(4) Any relative or spouse of any of the foregoing persons, or any
relative of such spouse, who shares the same home as any of the
foregoing persons.
Retail foreign exchange dealer means any person other than a retail
forex customer that is, or that offers to be, the counterparty to a
retail forex transaction, except for a person described in item (aa),
(bb), (cc)(AA), (dd), or (ff) of section 2(c)(2)(B)(i)(II) of the
Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)(i)(II)).
Retail forex account means the account of a retail forex customer,
established with a national bank, in which retail forex transactions
with the national bank as counterparty are undertaken, or the account
of a retail forex customer that is established in order to enter into
such transactions.
Retail forex account agreement means the contractual agreement
between a national bank and a retail forex customer that contains the
terms governing the customer's retail forex account with the national
bank.
Retail forex business means engaging in one or more retail forex
transactions with the intent to derive income from those transactions,
either directly or indirectly.
Retail forex customer means a customer that is not an eligible
contract participant, acting on his, her, or its own behalf and
engaging in retail forex transactions.
Retail forex proprietary account means: A retail forex account
carried on the books of a national bank for one of the following
persons; a retail forex account of which 10 percent or more is owned by
one of the following persons; or a retail forex account of which an
aggregate of 10 percent or more of which is owned by more than one of
the following persons:
(1) The national bank;
(2) An officer, director or owner of ten percent or more of the
capital stock of the national bank; or
(3) An employee of the national bank, whose duties include:
(i) The management of the national bank's business;
(ii) The handling of the national bank's retail forex transactions;
(iii) The keeping of records, including without limitation the
software used to make or maintain those records, pertaining to the
national bank's retail forex transactions; or
(iv) The signing or co-signing of checks or drafts on behalf of the
national bank;
(4) A spouse or minor dependent living in the same household as of
any of the foregoing persons; or
(5) An affiliate of the national bank;
Retail forex counterparty includes, as appropriate:
(1) A national bank;
(2) A retail foreign exchange dealer;
(3) A futures commission merchant; and
(4) An affiliated person of a futures commission merchant.
Retail forex transaction means an agreement, contract, or
transaction in foreign currency that is offered or entered into by a
national bank with a person that is not an eligible contract
participant and that is:
(1) A contract of sale of a commodity for future delivery or an
option on such a contract;
(2) An option, other than an option executed or traded on a
national securities exchange registered pursuant to section 6(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78(f)(a)); or
(3) Offered or entered into on a leveraged or margined basis, or
financed by a national bank, its affiliate, or any person acting in
concert with the national bank or its affiliate on a similar basis,
other than:
(i) A security that is not a security futures product as defined in
section 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)); or
(ii) A contract of sale that--
(A) Results in actual delivery within two days; or
(B) Creates an enforceable obligation to deliver between a seller
and buyer that have the ability to deliver and accept delivery,
respectively, in connection with their line of business.
Sec. 48.3 Prohibited transactions.
(a) Fraudulent conduct prohibited. No national bank or its IAPs
may, directly or indirectly, in or in connection with any retail forex
transaction:
(1) Cheat or defraud or attempt to cheat or defraud any person;
(2) Willfully make or cause to be made to any person any false
report or statement or cause to be entered for any person any false
record; or
(3) Willfully deceive or attempt to deceive any person by any means
whatsoever.
(b) Acting as counterparty and exercising discretion prohibited. If
a national bank can cause retail forex transactions to be effected for
a retail forex customer without the retail forex customer's specific
authorization, then neither the national bank nor its affiliates may
act as the counterparty for any retail forex transaction with that
retail forex customer.
Sec. 48.4 Supervisory non-objection.
(a) Supervisory non-objection required. Before commencing a retail
forex business, a national bank shall provide the OCC with prior notice
and obtain from the OCC a written supervisory non-objection.
(b) Requirements for obtaining supervisory non-objection. (1) In
order to obtain a written supervisory non-objection, a national bank
shall:
(i) Establish to the satisfaction of the OCC that the national bank
has established and implemented written policies, procedures, and risk
measurement and management systems and controls for the purpose of
ensuring that it conducts retail forex transactions in a safe and sound
manner and in compliance with this part; and
(ii) Provide such other information as the OCC may require.
(2) The information provided under paragraph (b)(1) of this section
shall include, without limitation, information regarding:
(i) Customer due diligence, including without limitation credit
evaluations, customer appropriateness, and ``know your customer''
documentation;
(ii) New product approvals;
(iii) The haircuts that the national bank will apply to noncash
margin as provided in Sec. 48.9(b)(2); and
(iv) Conflicts of interest.
(c) Treatment of existing retail forex businesses. A national bank
that is engaged in a retail forex business on [EFFECTIVE DATE OF FINAL
RULE] may continue to do so for up to six months, subject to an
extension of time by the OCC, if it requests the supervisory non-
objection required by paragraph (a) of this section within 30 days of
[EFFECTIVE DATE OF FINAL RULE] and submits the information required to
be submitted under paragraph (b) of this section.
(d) Compliance with the Commodity Exchange Act. A national bank
that is engaged in a retail forex business on [EFFECTIVE DATE OF FINAL
RULE] and complies with paragraph (c) of this section shall be deemed,
during the six-month or extended period described in paragraph (c) of
this section, to be acting pursuant to a rule or regulation described
in section 2(c)(2)(E)(ii)(I) of the Commodity Exchange Act (7 U.S.C.
2(c)(2)(E)(ii)(I)).
Sec. 48.5 Application and closing out of offsetting long and short
positions.
(a) Application of purchases and sales. Any national bank that--
(1) Engages in a retail forex transaction involving the purchase of
any currency for the account of any retail forex customer when the
account
[[Page 22642]]
of such retail forex customer at the time of such purchase has an open
retail forex transaction for the sale of the same currency;
(2) Engages in a retail forex transaction involving the sale of any
currency for the account of any retail forex customer when the account
of such retail forex customer at the time of such sale has an open
retail forex transaction for the purchase of the same currency;
(3) Purchases a put or call option involving foreign currency for
the account of any retail forex customer when the account of such
retail forex customer at the time of such purchase has a short put or
call option position with the same underlying currency, strike price,
and expiration date as that purchased; or
(4) Sells a put or call option involving foreign currency for the
account of any retail forex customer when the account of such retail
forex customer at the time of such sale has a long put or call option
position with the same underlying currency, strike price, and
expiration date as that sold shall:
(i) Immediately apply such purchase or sale against such previously
held opposite transaction; and
(ii) Promptly furnish such retail forex customer with a statement
showing the financial result of the transactions involved and the name
of any introducing broker to the account.
(b) Close-out against oldest open position. In all instances where
the short or long position in a customer's retail forex account
immediately prior to an offsetting purchase or sale is greater than the
quantity purchased or sold, the national bank shall apply such
offsetting purchase or sale to the oldest portion of the previously
held short or long position.
(c) Transactions to be applied as directed by customer.
Notwithstanding paragraph (b) of this section, the offsetting
transaction shall be applied as directed by a retail forex customer's
specific written instructions. These instructions may not be made by
the national bank or an IAP.
Sec. 48.6 Disclosure.
(a) Risk disclosure statement required. No national bank may open
or maintain open an account that will engage in retail forex
transactions for a retail forex customer unless the national bank has
furnished the retail forex customer with a separate written disclosure
statement containing only the language set forth in paragraph (d) of
this section and the disclosures required by paragraphs (e) and (f) of
this section.
(b) Acknowledgement of risk disclosure statement required. The
national bank must receive from the retail forex customer a written
acknowledgement signed and dated by the customer that the customer
received and understood the written disclosure statement required by
paragraph (a) of this section.
(c) Placement of risk disclosure statement. The disclosure
statement may be attached to other documents as the initial page(s) of
such documents and as the only material on such page(s).
(d) Content of risk disclosure statement. The language set forth in
the written disclosure statement required by paragraph (a) of this
section shall be as follows:
Risk Disclosure Statement
Retail forex transactions involve the leveraged trading of
contracts denominated in foreign currency with a national bank as
your counterparty. Because of the leverage and the other risks
disclosed here, you can rapidly lose all of the funds you give the
national bank as margin for such trading and you may lose more than
you pledge as margin.
Furthermore, you may lose funds in other accounts that you
maintain at the national bank or its affiliates if you pledge those
funds or other assets as collateral for your retail forex
obligations. Your national bank is prohibited from applying losses
that you experience on retail forex transactions on any funds or
property of yours other than funds or property that you have given
or pledged as margin for retail forex transactions.
You should be aware of and carefully consider the following
points before determining whether such trading is appropriate for
you.
(1) Trading is a not on a regulated market or exchange--your
national bank is your trading counterparty and has conflicting
interests. The retail forex transaction you are entering into is not
conducted on an interbank market, nor is it conducted on a futures
exchange subject to regulation as a designated contract market by
the Commodity Futures Trading Commission. The foreign currency
trades you transact are trades with your national bank as the
counterparty. When you sell, the national bank is the buyer. When
you buy, the national bank is the seller. As a result, when you lose
money trading, your national bank is making money on such trades, in
addition to any fees, commissions, or spreads the national bank may
charge.
(2) An electronic trading platform for retail foreign currency
transactions is not an exchange. It is an electronic connection for
accessing your national bank. The terms of availability of such a
platform are governed only by your contract with your national bank.
Any trading platform that you may use to enter into off-exchange
foreign currency transactions is only connected to your national
bank. You are accessing that trading platform only to transact with
your national bank. You are not trading with any other entities or
customers of the national bank by accessing such platform. The
availability and operation of any such platform, including the
consequences of the unavailability of the trading platform for any
reason, is governed only by the terms of your account agreement with
the national bank.
(3) You may be able to offset or liquidate any trading positions
only through your banking entity because the transactions are not
made on an exchange or regulated contract market, and your national
bank may set its own prices. Your ability to close your transactions
or offset positions is limited to what your national bank will offer
to you, as there is no other market for these transactions. Your
national bank may offer any prices it wishes, including prices
derived from outside sources or not in its discretion. Your national
bank may establish its prices by offering spreads from third party
prices, but it is under no obligation to do so or to continue to do
so. Your national bank may offer different prices to different
customers at any point in time on its own terms. The terms of your
account agreement alone govern the obligations your national bank
has to you to offer prices and offer offset or liquidating
transactions in your account and make any payments to you. The
prices offered by your national bank may or may not reflect prices
available elsewhere at any exchange, interbank, or other market for
foreign currency.
(4) Paid solicitors may have undisclosed conflicts. The national
bank may compensate introducing brokers for introducing your account
in ways that are not disclosed to you. Such paid solicitors are not
required to have, and may not have, any special expertise in
trading, and may have conflicts of interest based on the method by
which they are compensated. You should thoroughly investigate the
manner in which all such solicitors are compensated and be very
cautious in granting any person or entity authority to trade on your
behalf. You should always consider obtaining dated written
confirmation of any information you are relying on from your
national bank in making any trading or account decisions.
(5) This transaction is not insured by the Federal Deposit
Insurance Corporation.
(6) This transaction is not a deposit in, or guaranteed by, a
national bank.
(7) This transaction is subject to investment risks, including
possible loss of all amounts invested.
Finally, you should thoroughly investigate any statements by any
national bank that minimize the importance of, or contradict, any of
the terms of this risk disclosure. Such statements may indicate
sales fraud.
This brief statement cannot, of course, disclose all the risks
and other aspects of trading off-exchange foreign currency with a
national bank.
I hereby acknowledge that I have received and understood this
risk disclosure statement.
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Date
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Signature of Customer
[[Page 22643]]
(e)(1) Disclosure of profitable accounts ratio. Immediately
following the language set forth in paragraph (d) of this section, the
statement required by paragraph (a) of this section shall include, for
each of the most recent four calendar quarters during which the
national bank maintained retail forex customer accounts:
(i) The total number of retail forex customer accounts maintained
by the national bank over which the national bank does not exercise
investment discretion;
(ii) The percentage of such accounts that were profitable for
retail forex customer accounts during the quarter; and
(iii) The percentage of such accounts that were not profitable for
retail forex customer accounts during the quarter.
(2) The national bank's statement of profitable trades shall
include the following legend: ``Past performance is not necessarily
indicative of future results.'' Each national bank shall provide, upon
request, to any retail forex customer or prospective retail forex
customer the total number of retail forex accounts maintained by the
national bank for which the national bank does not exercise investment
discretion, the percentage of such accounts that were profitable, and
the percentage of such accounts that were not profitable for each
calendar quarter during the most recent five-year period during which
the national bank maintained such accounts.
(f) Disclosure of fees and other charges. Immediately following the
language required by paragraph (e) of this section, the statement
required by paragraph (a) of this section shall include:
(i) The amount of any fee, charge, or commission that the national
bank may impose on the retail forex customer in connection with a
retail forex account or retail forex transaction;
(ii) An explanation of how the national bank will determine the
amount of such fees, charges, or commissions; and
(iii) The circumstances under which the national bank may impose
such fees, charges, or commissions.
(g) Future disclosure requirements. If, with regard to a retail
forex customer, the national bank changes any fee, charge, or
commission required to be disclosed under paragraph (f) of this
section, then the national bank shall mail or deliver to the retail
forex customer a notice of the changes at least 15 days prior to the
effective date of the change.
(h) Form of disclosure requirements. The disclosures required by
this section shall be clear and conspicuous and designed to call
attention to the nature and significance of the information provided.
(i) Other disclosure requirements unaffected. This section does not
relieve a national bank from any other disclosure obligation it may
have under applicable law.
Sec. 48.7 Recordkeeping.
(a) General rule. A national bank engaging in retail forex
transactions shall keep full, complete and systematic records, together
with all pertinent data and memoranda, of all transactions relating to
its retail forex business, including:
(1) Retail forex account records for each customer reflecting:
(i) The name and address of the person for who such retail forex
account is carried or introduced and the principal occupation or
business of such person;
(ii) The name of any other person guaranteeing such retail forex
account or exercising trading control with respect to such account;
(iii) The establishment or termination of each retail forex
account; and
(iv) For each retail forex account the records must also show the
name of the person who has solicited and is responsible for the account
or assign account numbers in such a manner as to identify that person.
(2) Financial ledger records that show separately for each retail
forex customer all charges against and credits to such retail forex
customer's account, including but not limited to retail forex customer
funds deposited, withdrawn, or transferred, and charges or credits
resulting from losses or gains on closed transactions.
(3) Transaction records that show separately for each retail forex
account and each retail forex proprietary account:
(i) All retail forex transactions that are futures transactions
executed for such account, including the date, price, quantity, market,
currency pair, and delivery date;
(ii) All retail forex transactions that are option transactions
executed for such account, including the date, whether the transaction
involved a put or call, expiration date, quantity, underlying contract
for future delivery or underlying physical, strike price, and details
of the purchase price of the option, including premium, mark-up,
commission, and fees; and
(iii) All other retail forex transactions that are executed for
such account, including the date, price, quantity, and currency pair.
(4) Daily records which show for each business day complete details
of:
(i) All retail forex transactions that are futures transactions
executed on that day, including the date, price, quantity, market,
currency pair, delivery date, and the person for whom such transaction
was made;
(ii) All retail forex transactions that are option transactions
executed on that day, including the date, whether the transaction
involved a put or call, the expiration date, quantity, currency pair,
delivery date, strike price, details of the purchase price of the
option, including premium, mark-up, commission and fees, and the person
for whom the transaction was made; and
(iii) All other retail forex transactions executed on that day for
such account, including the date, price, quantity, currency and the
person for whom such transaction was made.
(5) Memorandum order (order ticket). Except as provided in
paragraph (a)(6) of this section, immediately upon the written or
verbal receipt of a retail forex transaction order, a national bank
shall prepare a separate written memorandum order (order ticket) for
the order (whether unfulfilled, executed or canceled), including:
(i) Account identification (account or customer name with which the
retail forex transaction was effected);
(ii) Order number;
(iii) Type of order (market order, limit order, or subject to
special instructions);
(iv) Date and time, to the nearest minute, the retail forex
transaction order was received (as evidenced by timestamp or other
timing device);
(v) Time, to the nearest minute, the retail forex transaction order
was executed; and
(vi) Price at which the retail forex transaction was executed.
(6) Post-execution allocation of bunched orders. Specific customer
account identifiers for accounts included in bunched orders need not be
recorded at time of order placement or upon report of execution as
required under paragraph (a)(5) of this section if the following
requirements are met:
(i) The national bank placing and directing the allocation of an
order eligible for post-execution allocation has been granted written
investment discretion with regard to participating customer accounts
and makes the following information available to customers upon
request:
(A) The general nature of the allocation methodology the national
bank will use;
(B) Whether the national bank has any interest in accounts which
may be included with customer accounts in
[[Page 22644]]
bunched orders eligible for post-execution allocation; and
(C) Summary or composite data sufficient for that customer to
compare its results with those of other comparable customers and, if
applicable, any account in which the national bank has an interest.
(ii) A national bank must allocate orders eligible for post-
execution allocation in accordance with the following:
(A) Allocations must be made as soon as practicable after the
entire transaction is executed;
(B) Allocations must be fair and equitable; no account or group of
accounts may receive consistently favorable or unfavorable treatment;
and
(C) The allocation methodology must be sufficiently objective and
specific to permit independent verification of the fairness of the
allocations using that methodology by the OCC.
(7) Other records. Other records covered by this section include
written acknowledgements of receipt of the risk disclosure statement
required by Sec. 48.6(b), trading cards, signature cards, street
books, journals, ledgers, payment records, copies of statements of
purchase, and all other records, data and memoranda that have been
prepared in the course of the national bank's retail forex business.
(b) Ratio of profitable accounts. (1) With respect to its active
retail forex customer accounts over which it did not exercise
investment discretion and that are not retail forex proprietary
accounts open for any period of time during the quarter, a national
bank shall prepare and maintain on a quarterly basis (calendar
quarter):
(i) A calculation of the percentage of such accounts that were
profitable;
(ii) A calculation of the percentage of such accounts that were not
profitable; and
(iii) Data supporting the calculations described in paragraphs
(b)(1)(i) and (ii) of this section.
(2) In calculating whether a retail forex account was profitable or
not profitable during the quarter, the national bank shall compute the
realized and unrealized gains or losses on all retail forex
transactions carried in the retail forex account at any time during the
quarter, and subtract all fees, commissions, and any other charges
posted to the retail forex account during the quarter, and add any
interest income and other income or rebates credited to the retail
forex account during the quarter. All deposits and withdrawals of funds
made by the retail forex customer during the quarter must be excluded
from the computation of whether the retail forex account was profitable
or not profitable during the quarter. Computations that result in a
zero or negative number shall be considered a retail forex account that
was not profitable. Computations that result in a positive number shall
be considered a retail forex account that was profitable.
(3) A retail forex account shall be considered ``active'' for
purposes of paragraph (b)(1) of this section if and only if, for the
relevant calendar quarter, a retail forex transaction was executed in
that account or the retail forex account contained an open position
resulting from a retail forex transaction.
(c) Records related to possible violations of law. A national bank
engaging in retail forex transactions shall make a record of all
communications received by the national bank or its IAPs concerning
facts giving rise to possible violations of law related to the national
bank's retail forex business. The record shall contain: The name of the
complainant, if provided; the date of the communication; the relevant
agreement, contract, or transaction; the substance of the
communication; and the name of the person who received the
communication.
(d) Records for noncash margin. A national bank shall maintain a
record of all noncash margin collected pursuant to Sec. 48.9. The
record shall show separately for each retail forex customer:
(1) A description of the securities or property received;
(2) The name and address of such retail forex customer;
(3) The dates when the securities or property were received;
(4) The identity of the depositories or other places where such
securities or property are segregated or held, if applicable;
(5) The dates in which the national bank placed or removed such
securities or property into or from such depositories; and
(6) The dates of return of such securities or property to such
retail forex customer, or other disposition thereof, together with the
facts and circumstances of such other disposition.
(e) Record of monthly statements and confirmations. A national bank
shall retain a copy of each monthly statement and confirmation required
by Sec. 48.10.
(f) Manner of maintenance. The records required by this section
must clearly and accurately reflect the information required and
provide an adequate basis for the audit of the information. Record
maintenance may include the use of automated or electronic records
provided that the records are easily retrievable, readily available for
inspection, and capable of being reproduced in hard copy.
(g) Length of maintenance. A national bank shall keep each record
required by this section for at least five years from the date the
record is created.
Sec. 48.8 Capital requirements.
A national bank offering or entering into retail forex transactions
must be well capitalized as defined by 12 CFR part 6, unless
specifically exempted by the OCC in writing.
Sec. 48.9 Margin requirements.
(a) Margin required. A national bank engaging, or offering to
engage, in retail forex transactions must collect from each retail
forex customer an amount of margin not less than:
(1) Two percent of the notional value of the retail forex
transaction for major currency pairs and 5 percent of the notional
value of the retail forex transaction for all other currency pairs;
(2) For short options, 2 percent for major currency pairs and 5
percent for all other currency pairs of the notional value of the
retail forex transaction, plus the premium received by the retail forex
customer; or
(3) For long options, the full premium charged and received by the
national bank.
(b)(1) Form of margin. Margin collected under paragraph (a) of this
section or pledged by a retail forex customer in excess of the
requirements of paragraph (a) of this section must be in the form of
cash or the following financial instruments:
(i) Obligations of the United States and obligations fully
guaranteed as to principal and interest by the United States;
(ii) General obligations of any State or of any political
subdivision thereof;
(iii) General obligations issued or guaranteed by any enterprise,
as defined in 12 U.S.C. 4502(10);
(iv) Certificates of deposit issued by an insured depository
institution, as defined in section 3(c)(2) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(c)(2));
(v) Commercial paper;
(vi) Corporate notes or bonds;
(vii) General obligations of a sovereign nation;
(viii) Interests in money market mutual funds; and
(ix) Such other financial instruments as the OCC deems appropriate.
(2) Haircuts. A national bank shall establish written policies and
procedures that include:
(i) Haircuts for noncash margin collected under this section; and
[[Page 22645]]
(ii) Annual evaluation, and, if appropriate, modification of the
haircuts.
(c) Separate margin account. Margin collected by the national bank
from a retail forex customer for retail forex transactions or pledged
by a retail forex customer for retail forex transactions shall be
placed into a separate account containing only such margin.
(d) Margin calls; liquidation of position. For each retail forex
customer, at least once per day, a national bank shall:
(1) Mark the value of the retail forex customer's open retail forex
positions to market;
(2) Mark the value of the margin collected under this section from
the retail forex customer to market;
(3) Determine if, based on the marks in paragraphs (c)(1) and (2)
of this section, the national bank has collected margin from the retail
forex customer sufficient to satisfy the requirements of this section;
and
(4) Collect such margin from the retail forex customer as the
national bank may require to satisfy the requirements of this section,
or liquidate the retail forex customer's retail forex transactions.
(e) Set-off prohibited. A national bank may not:
(1) Apply a retail forex customer's losses on retail forex
transactions against any funds or other asset of the retail forex
customer other than margin in the retail forex customer's separate
margin account described in paragraph (c) of this section;
(2) Apply a retail forex customer's losses on retail forex
transactions to increase the amount owed by the retail forex customer
to the national bank under any loan; or
(3) Collect the margin required under this section by use of any
right of set-off.
Sec. 48.10 Required reporting to customers.
(a) Monthly statements. Each national bank must promptly furnish to
each retail forex customer, as of the close of the last business day of
each month or as of any regular monthly date selected, except for
accounts in which there are neither open positions at the end of the
statement period nor any changes to the account balance since the prior
statement period, but in any event not less frequently than once every
three months, a statement that clearly shows:
(1) For each retail forex customer:
(i) The open retail forex transactions with prices at which
acquired;
(ii) The net unrealized profits or losses in all open retail forex
transactions marked to the market;
(iii) Any money, securities or other property in the separate
margin account required by Sec. 48.9(c); and
(iv) A detailed accounting of all financial charges and credits to
the retail forex customer's retail forex accounts during the monthly
reporting period, including: money, securities, or property received
from or disbursed to such customer; realized profits and losses; and
fees, charges, and commissions.
(2) For each retail forex customer engaging in retail forex
transactions that are options:
(i) All such options purchased, sold, exercised, or expired during
the monthly reporting period, identified by underlying retail forex
transaction or underlying currency, strike price, transaction date, and
expiration date;
(ii) The open option positions carried for such customer and
arising as of the end of the monthly reporting period, identified by
underlying retail forex transaction or underlying currency, strike
price, transaction date, and expiration date;
(iii) All such option positions marked to the market and the amount
each position is in the money, if any;
(iv) Any money, securities or other property in the separate margin
account required by Sec. 48.9(c); and
(v) A detailed accounting of all financial charges and credits to
the retail forex customer's retail forex accounts during the monthly
reporting period, including: money, securities, or property received
from or disbursed to such customer; realized profits and losses; and
fees, charges, and commissions.
(b) Confirmation statement. Each national bank must, not later than
the next business day after any retail forex transaction, send:
(1) To each retail forex customer, a written confirmation of each
retail forex transaction caused to be executed by it for the customer,
including offsetting transactions executed during the same business day
and the rollover of an open retail forex transaction to the next
business day;
(2) To each retail forex customer engaging in forex option
transactions, a written confirmation of each forex option transaction,
containing at least the following information:
(i) The retail forex customer's account identification number;
(ii) A separate listing of the actual amount of the premium, as
well as each mark-up thereon, if applicable, and all other commissions,
costs, fees and other charges incurred in connection with the forex
option transaction;
(iii) The strike price;
(iv) The underlying retail forex transaction or underlying
currency;
(v) The final exercise date of the forex option purchased or sold;
and
(vi) The date the forex option transaction was executed.
(3) To each retail forex customer engaging in forex option
transactions, upon the expiration or exercise of any option, a written
confirmation statement thereof, which statement shall include the date
of such occurrence, a description of the option involved, and, in the
case of exercise, the details of the retail forex or physical currency
position which resulted therefrom including, if applicable, the final
trading date of the retail forex transaction underlying the option.
(c) Notwithstanding the provisions of paragraphs (b)(1) through (3)
of this section, a retail forex transaction that is caused to be
executed for a pooled investment vehicle that engages in retail forex
transactions need be confirmed only to the operator of such pooled
investment vehicle.
(d) Controlled accounts. With respect to any account controlled by
any person other than the retail forex customer for whom such account
is carried, each national bank shall promptly furnish in writing to
such other person the information required by paragraphs (a) and (b) of
this section.
(e) Introduced accounts. Each statement provided pursuant to the
provisions of this section must, if applicable, show that the account
for which the national bank was introduced by an introducing broker and
the name of the introducing broker.
Sec. 48.11 Unlawful representations.
(a) No implication or representation of limiting losses. No
national bank engaged in retail foreign exchange transactions or its
IAPs may imply or represent that it will, with respect to any retail
customer forex account, for or on behalf of any person:
(1) Guarantee such person or account against loss;
(2) Limit the loss of such person or account; or
(3) Not call for or attempt to collect margin as established for
retail forex customers.
(b) No implication of representation of engaging in prohibited
acts. No national bank or its IAPs may in any way imply or represent
that it will engage in any of the acts or practices described in
paragraph (a) of this section.
(c) No Federal government endorsement. No national bank or its IAPs
may represent or imply in any manner whatsoever that any retail forex
transaction or retail forex product has
[[Page 22646]]
been sponsored, recommended, or approved by the OCC, the Federal
government, or any agency thereof.
(d) Assuming or sharing of liability from bank error. This section
shall not be construed to prevent a national bank from assuming or
sharing in the losses resulting from the national bank's error or
mishandling of a retail forex transaction.
(e) Certain guaranties unaffected. This section shall not affect
any guarantee entered into prior to the effective date of this part,
but this section shall apply to any extension, modification or renewal
thereof entered into after such date.
Sec. 48.12 Authorization to trade.
(a) Specific authorization required. No national bank may directly
or indirectly effect a retail forex transaction for the account of any
retail forex customer unless, before the transaction occurs, the retail
forex customer specifically authorized the national bank, in writing,
to effect the retail forex transaction.
(b) Requirements for specific authorization A retail forex
transaction is ``specifically authorized'' for purposes of this section
if the retail forex customer specifies:
(1) The precise retail forex transaction to be effected;
(2) The exact amount of the foreign currency to be purchased or
sold; and
(3) In the case of an option, the identity of the foreign currency
or contract that underlies the option.
Sec. 48.13 Trading and operational standards.
(a) Internal rules, procedures, and controls required. A national
bank engaging in retail forex transactions shall establish and
implement internal rules, procedures, and controls designed, at a
minimum, to:
(1) Ensure, to the extent reasonable, that each order received from
a retail forex customer that is executable at or near the price that
the national bank has quoted to the customer is entered for execution
before any order in any retail forex transaction for any proprietary
account, any other account in which a related person has an interest,
or any account for which such a related person may originate orders
without the prior specific consent of the account owner (if such
related person has gained knowledge of the retail forex customer's
order prior to the transmission of an order for a proprietary account),
an account in which such a related person has an interest, or an
account in which such a related person may originate orders without the
prior specific consent of the account owner;
(2) Prevent national bank related persons from placing orders,
directly or indirectly, with another person in a manner designed to
circumvent the provisions of paragraph (a)(1) of this section;
(3) Fairly and objectively establish settlement prices for retail
forex transactions; and
(4) Record and maintain essential information regarding customer
orders and account activity, and to provide such information to
customers upon request. Such information shall include:
(i) Transaction records for the customer's account, including:
(A) The date and time each order is received by the national bank;
(B) The price at which each order is placed, or, in the case of an
option, the premium paid;
(C) If the transaction was entered into by means of a trading
platform, the price quoted on the trading platform when the order was
placed, or, in the case of an option, the premium quoted;
(D) The customer account identification information;
(E) The currency pair;
(F) The size of the transaction;
(G) Whether the order was a buy or sell order;
(H) The type of order, if the order was not a market order;
(I) If a trading platform is used, the date and time the order is
transmitted to the trading platform;
(J) If a trading platform is used, the date and time the order is
executed;
(K) The size and price at which the order is executed, or in the
case of an option, the amount of the premium paid for each option
purchased, or the amount credited for each option sold; and
(L) For options, whether the option is a put or call, the strike
price, and expiration date.
(ii) Account records that contain the following information:
(A) The funds in the account, net of any commissions and fees;
(B) The net profits and losses on open trades; and
(C) The funds in the account plus or minus the net profits and
losses on open trades. (In the case of open option positions, the
account balance should be adjusted for the net option value);
(iii) If a trading platform is used, daily logs showing each price
change on the platform, the time of the change to the nearest second,
and the trading volume at that time and price; and
(iv) Any method or algorithm used to determine the bid or asked
price for any retail forex transaction or the prices at which customer
orders are executed, including, but not limited to, any markups, fees,
commissions or other items which affect the profitability or risk of
loss of a retail forex customer's transaction.
(b) Disclosure of retail forex transactions. No national bank
engaging in retail forex transactions may disclose that an order of
another person is being held by the national bank, unless the
disclosure is necessary to the effective execution of such order or the
disclosure is made at the request of the OCC.
(c) Handling of retail forex accounts of related persons of retail
forex counterparties. No national bank engaging in retail forex
transactions shall knowingly handle the retail forex account of any
related person of another retail forex counterparty unless it:
(1) Receives written authorization from a person designated by such
other retail forex counterparty with responsibility for the
surveillance over such account pursuant to paragraph (a)(2) of this
section;
(2) Prepares immediately upon receipt of an order for such account
a written record of such order, including the account identification
and order number, and records thereon to the nearest minute, by time-
stamp or other timing device, the date and time the order is received;
and
(3) Transmits on a regular basis to such other retail forex
counterparty copies of all statements for such account and of all
written records prepared upon the receipt of orders for such account
pursuant to paragraph (a)(2) of this section.
(d) Related person of national bank establishing account at another
retail forex counterparty. No related person of a national bank
engaging in retail forex transactions may have an account, directly or
indirectly, with another retail forex counterparty unless:
(1) It receives written authorization to maintain such an account
from a person designated by the national bank of which it is a related
person with responsibility for the surveillance over such account
pursuant to paragraph (a)(2) of this section; and
(2) Copies of all statements for such account and of all written
records prepared by such other retail forex counterparty upon receipt
of orders for such account pursuant to paragraph (c)(2) of this section
are transmitted on a regular basis to the retail forex counterparty of
which it is a related person.
(e) Prohibited trading practices. No national bank engaging in
retail forex transactions may:
(1) Enter into a retail forex transaction, to be executed pursuant
to
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a market or limit order at a price that is not at or near the price at
which other retail forex customers, during that same time period, have
executed retail forex transactions with the national bank;
(2) Adjust or alter prices for a retail forex transaction after the
transaction has been confirmed to the retail forex customer;
(3) Provide a retail forex customer a new bid price for a retail
forex transaction that is higher than its previous bid without
providing a new asked price that is also higher than its previous asked
price by a similar amount;
(4) Provide a retail forex customer a new bid price for a retail
forex transaction that is lower than its previous bid without providing
a new asked price that is also lower than its previous asked price by a
similar amount; or
(5) Establish a new position for a retail forex customer (except
one that offsets an existing position for that retail forex customer)
where the national bank holds outstanding orders of other retail forex
customers for the same currency pair at a comparable price.
Sec. 48.14 Supervision.
(a) Supervision by the national bank. A national bank engaging in
retail forex transactions shall diligently supervise the handling by
its officers, employees, and agents (or persons occupying a similar
status or performing a similar function) of all retail forex accounts
carried, operated, or advised by at the national bank and all
activities of its officers, employees, and agents (or persons occupying
a similar status or performing a similar function) relating to its
retail forex business.
(b) Supervision by officers, employees, or agents. An officer,
employee, or agent of a national bank must diligently supervise his or
her subordinates' handling of all retail forex accounts at the national
bank and all the subordinates' activities relating to the national
bank's retail forex business.
Sec. 48.15 Notice of transfers.
(a) Prior notice generally required. Except as provided in
paragraph (b) of this section, a national bank must provide a retail
forex customer with 30 days' prior notice of any assignment of any
position or transfer of any account of the retail forex customer. The
notice must include a statement that the retail forex customer is not
required to accept the proposed assignment or transfer and may direct
the national bank to liquidate the positions of the retail forex
customer or transfer the account to a retail forex counterparty of the
retail forex customer's selection.
(b) Exceptions. The requirements of paragraph (a) of this section
shall not apply to transfers:
(1) Requested by the retail forex customer;
(2) Made by the Federal Deposit Insurance Corporation as receiver
or conservator under the Federal Deposit Insurance Act; or
(3) Otherwise authorized by applicable law.
(c) Obligations of transferee national bank. A national bank to
which retail forex accounts or positions are assigned or transferred
under paragraph (a) of this section must provide to the affected retail
forex customers the risk disclosure statements and forms of
acknowledgment required by this part and receive the required signed
acknowledgments within sixty days of such assignments or transfers.
This requirement shall not apply if the national bank has clear written
evidence that the retail forex customer has received and acknowledged
receipt of the required disclosure statements.
Sec. 48.16 Customer dispute resolution.
(a) Voluntary submission of claims to dispute or settlement
procedures. No national bank shall enter into any agreement or
understanding with a retail forex customer in which the customer
agrees, prior to the time a claim or grievance arises, to submit such
claim or grievance to any settlement procedure unless the following
conditions are satisfied:
(1) Signing the agreement must not be made a condition for the
customer to use the services offered by the national bank.
(2) If the agreement is contained as a clause or clauses of a
broader agreement, the customer must separately endorse the clause or
clauses.
(3) The agreement must advise the retail forex customer that, at
such time as the customer notifies the national bank that the customer
intends to submit a claim to arbitration, or at such time the national
bank notifies the customer of its intent to submit a claim to
arbitration, the customer will have the opportunity to choose a person
qualified in dispute resolution to conduct the proceeding.
(4) The agreement must acknowledge that the national bank will pay
any incremental fees that may be assessed in connection with the
dispute resolution, unless it is determined in the proceeding that the
retail forex customer has acted in bad faith in initiating the
proceeding.
(5) The agreement must include the following language printed in
large boldface type:
The opportunity to settle disputes by arbitration may in some
cases provide benefits to customers, including the ability to obtain
an expeditious and final resolution of disputes without incurring
substantial cost. Each customer must individually examine the
relative merits of arbitration and consent to this arbitration
agreement must be voluntary.
By signing this agreement, you: (1) May be waving your right to
sue in a court of law; and (2) are agreeing to be bound by
arbitration of any claims or counterclaims which you or [insert name
of national bank] may submit to arbitration under this agreement. In
the event a dispute arises, you will be notified if [insert name of
national bank] intends to submit the dispute to arbitration.
You need not sign this agreement to open or maintain a retail
forex account with [insert name of national bank].
(b) Election of forum. (1) Within ten business days after receipt
of notice from the retail forex customer that the customer intends to
submit a claim to arbitration, the national bank must provide the
customer with a list of persons qualified in dispute resolution.
(2) The customer shall, within 45 days after receipt of such list,
notify the national bank of the person selected. The customer's failure
to provide such notice shall give the national bank the right to select
a person from the list.
(c) Enforceability. A dispute settlement procedure may require
parties using such procedure to agree, under applicable state law,
submission agreement or otherwise, to be bound by an award rendered in
the procedure, provided that the agreement to submit the claim or
grievance to the voluntary procedure under paragraph (a) of this
section or that agreement to submit the claim or grievance was made
after the claim or grievance arose. Any award so rendered shall be
enforceable in accordance with applicable law.
(d) Time limits for submission of claims. The dispute settlement
procedure used by the parties shall not include any unreasonably short
limitation period foreclosing submission of a customer's claims or
grievances or counterclaims.
(e) Counterclaims. A procedure for the settlement of a retail forex
customer's claims or grievances against a national bank or employee
thereof may permit the submission of a counterclaim in the procedure by
a person against whom a claim or grievance is brought. Such a
counterclaim may be permitted where it arises out of the transaction or
occurrence that is the subject of the customer's claim or grievance and
does
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not require for adjudication the presence of essential witnesses,
parties, or third persons over which the settlement process lacks
jurisdiction.
Dated: April 18, 2011.
John Walsh,
Acting Comptroller of the Currency.
[FR Doc. 2011-9821 Filed 4-21-11; 8:45 am]
BILLING CODE 4810-33-P