CFTC regulations against forex fraud
Forex market has gained reputation of being worldӳ largest financial market but it also means that forex frauds are on the rise every day. To prevent such frauds there are several regulatory bodies which have the responsibility of controlling as well as overseeing forex trading occurring in different countries. In the following sections we will look at one of the main regulatory bodies in the forex market known as Commodities Futures Trading Commission or CFTC.
Creation of CFTC
It all started with the creation of legislation called CEA or Commodity Exchange Act by government of United States in the year 1936. This act was replacement for Grain Futures Act or GFA of 1922. The main aim of this act was to reduce fraudulent conduct taking place in different forms of trading such as future contracts. This act was then amended in 1974 to create improved framework of regulations & CFTC was created to replace the earlier act. There are 5 members in CFT commission with five year tenure and are selected by U.S. President. The chairman of this commission is also selected by President from one of these 5 members.
Role Played by CFTC
This commissionӳ primary responsibility is protecting people from frauds in the future markets, stop illegal as well as abusive practices prevalent in financial trading and lastly preserve integrity in options plus futures market.
Responsibilities of CFTC
The commission is responsible for market surveillance, rule enforcement review and amendments of rules. In addition to it CFTC also performs different studies with relation to various financial products. Commissionӳ enforcement division has to investigate actӳ violations & prosecute violators. The other responsibilities of CFTC are case development as well as providing people information related to possible frauds that can occur while they trade in forex market.
CFTC ֠New Regulations
Many new regulations have been added in CFTC and some of which are like 10:1 leverage cap on forex trades and rule which make it necessary for forex brokers to register with CFTC as retail forex dealers. To register the forex brokers will have to qualify the capital requirements CFTC has set to mitigate counter party risks & safeguard interests of retail traders.
In addition to it new brokers who have intermediary role that involves customers and brokers will need agreement with their dealer. The dealer will also have to vouch for such new brokers. Such legislations will make forex trading much safer for investors. However, forex market will be affected negatively due to the leverage limit of 10:1 and could result in shifting of traders to outside markets.
Advantages of CFTC
The main advantage of CFTC is that it has made forex trading a lot safer and the legal steps taken by the commission has resulted in recovery of funds by investors who were defrauded. Existence of CFTC in USA has helped to safeguard investments made by people and also made people more conscious about trading risks.
To conclude we would like to say that CFTC is the main regulator which oversees trading activities and even though many believe that the rules are stringent, they have resulted in making forex trading safer for forex traders and reduced the number of frauds that occur.