Fed finalizes rule to allow retail forex transactions

126px-US-FederalReserveSystem-Seal.svgThe Federal Reserve announced on Thursday the finalization of a rule that would allow supervised banking entities to engage in off-exchange foreign currency transactions with retail companies provided they adhere to a number of conduct standards.

Under Dodd-Frank, the Commodity Exchange Act was amended to prohibit supervised entities from entering into certain types of foreign exchange transactions with retail customers except under rules issued by regulators that would allow the practice.

The final rule sets requirements for customer risk disclosures, business conduct, recordkeeping and documentation for retail forex transactions. Supervised institutions that engage in retail forex transactions are required to notify the Fed of the activities, be well capitalized and collect margin for retail forex transactions.

The rule applies to forex transactions considered as futures or options on futures, over-the-counter options on foreign currency and rolling spot transactions. Additionally, the rule also covers entities regulated by the Fed, including state-chartered banks, bank and savings and loan holding companies, Edge Act and agreement companies and uninsured, state-licensed branches and agencies of foreign banks.

In developing the rule, which will take effect May 13, the Fed consulted with the OCC and FDIC.

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